Market analyst Simon Peters believes the recent overhaul of the Federal Reserve’s policy on inflation will have a positive impact on the price of Bitcoin moving forwards.
Federal Reserve chair Jerome Powell revealed that the central bank will tolerate inflation to run above 2$ for “short periods of time”.
While this is a far cry from the kind of hyperinflation that is being seen struggling nations like Venezuela and Lebanon, it does demonstrate the fragility of major economies like the United States’, highlighting a potential use case for Bitcoin.
Peters, who is an analyst at eToro, said: “The Federal Reserve has announced significant policy change, as it now looks to target average inflation. Usually the Fed targets a 2% inflation rate, but under this new change it would allow a period of stagnant inflation to be followed by a period of above-target inflation to achieve the 2% average, before potentially hiking rates.
“Raising interest rates is usually the brake that the Fed applies to prevent inflation running rampant. However, under this new approach Jerome Powell and the FOMC will be less inclined to act, even if inflation goes over 2%.”
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Since Bitcoin’s creation more than 11 years ago it has been touted as a hedge against the traditional financial system, and in particular inflation which has seen LocalBitcoins volume soar in places like Venezuela.
Peters continued: “Bitcoin is increasingly being seen as a hedge against inflation, and I would expect this policy change from Powell to encourage more bitcoin acquisition from investors – both retail and institutional. We may even see more corporations holding bitcoin in reserve on their balance sheets.
“With interest rates not looking to move any time in the near future, the Fed’s new monetary policy could impact savers as they hold potentially fruitless investments such as fixed income assets. This move could push more money into the stock and crypto markets, as savvy investors look to new avenues to make a return.”
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