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A member of the Federal Reserve’s Board of Governors said on Wednesday that historically high interest rates in the United States could “exacerbate” stress in an already shaky banking system.
The governor also indicated that the central bank may decide not to raise its benchmark interest rate at the next Federal Open Market Committee (FOMC) meeting, which could have an impact on the price of bitcoin.
Rising rates and growing debt
Fed Governor Philip N. jefferson commented on an economic outlook of the US financial system during a speech at the 22nd Annual International Conference on Policy Challenges for the Financial Sector in Washington DC
Claiming that the banking system had “stabilized” after several bank runs and foreclosures in March, the governor recognized the risks associated with higher short-term interest rates, which were “5 percentage points higher than a year ago.”
As Jefferson explained, the effects of monetary policy operate with “long and variable lags” that are not fully accounted for in just one year. For the full year, he predicted “increased uncertainty” and slower growth amid a decline in household savings and tighter financial conditions.
Although the governor did not predict a recession, he claimed that the combination of lower earnings and higher rates could “test the ability of businesses to service debt.”
“Furthermore … higher interest rates may further increase the stress on banking organizations, especially those with high exposure to long-term assets and a relatively high ratio of uninsured deposits to total deposits, He continued.
Will the Fed ‘give up’ on rate hikes?
When Silicon Valley Bank (SVB) experienced a bank run in March, it happened after the company disclosed a $1.8 billion loss on its long-term bonds.
Ultimately insurance coverage did not matter to SVB, as the Federal Reserve, Treasury Department and the FDIC agreed to fully bail out all depositors at that time”.systemic risk exception,
critics of the move noted How the central bank’s rescue activity reversed much of its progress in an attempt to withdraw liquidity from the economy, which again could contribute to inflation for assets like bitcoin.
The governor gave the idea that the Fed could hold its policy rate steady in the “coming meeting”, but this should not be interpreted as the Fed reaching “the peak rate for this cycle”.
“Indeed, leaving the rate hike in the coming meeting will allow the committee to see more data before making a decision about the extent of additional policy setting,” he concluded.
Rising rates drove bitcoin and stocks lower throughout 2022, raising the potential for extreme rate hikes for the asset. That said, analysis suggestion of Bitcoin may not be as affected by rate hikes as it was last year.
Binance Free $100 (Exclusive): Use this link to register and get $100 free and 10% off on Binance Futures for the first month. (terms).
PrimeXBT SPECIAL OFFER: Use this link to register and enter the code CRYPTOPOTATO50 to receive up to $7,000 on your deposit.
[ad_1]
A member of the Federal Reserve’s Board of Governors said on Wednesday that historically high interest rates in the United States could “exacerbate” stress in an already shaky banking system.
The governor also indicated that the central bank may decide not to raise its benchmark interest rate at the next Federal Open Market Committee (FOMC) meeting, which could have an impact on the price of bitcoin.
Rising rates and growing debt
Fed Governor Philip N. jefferson commented on an economic outlook of the US financial system during a speech at the 22nd Annual International Conference on Policy Challenges for the Financial Sector in Washington DC
Claiming that the banking system had “stabilized” after several bank runs and foreclosures in March, the governor recognized the risks associated with higher short-term interest rates, which were “5 percentage points higher than a year ago.”
As Jefferson explained, the effects of monetary policy operate with “long and variable lags” that are not fully accounted for in just one year. For the full year, he predicted “increased uncertainty” and slower growth amid a decline in household savings and tighter financial conditions.
Although the governor did not predict a recession, he claimed that the combination of lower earnings and higher rates could “test the ability of businesses to service debt.”
“Furthermore … higher interest rates may further increase the stress on banking organizations, especially those with high exposure to long-term assets and a relatively high ratio of uninsured deposits to total deposits, He continued.
Will the Fed ‘give up’ on rate hikes?
When Silicon Valley Bank (SVB) experienced a bank run in March, it happened after the company disclosed a $1.8 billion loss on its long-term bonds.
Ultimately insurance coverage did not matter to SVB, as the Federal Reserve, Treasury Department and the FDIC agreed to fully bail out all depositors at that time”.systemic risk exception,
critics of the move noted How the central bank’s rescue activity reversed much of its progress in an attempt to withdraw liquidity from the economy, which again could contribute to inflation for assets like bitcoin.
The governor gave the idea that the Fed could hold its policy rate steady in the “coming meeting”, but this should not be interpreted as the Fed reaching “the peak rate for this cycle”.
“Indeed, leaving the rate hike in the coming meeting will allow the committee to see more data before making a decision about the extent of additional policy setting,” he concluded.
Rising rates drove bitcoin and stocks lower throughout 2022, raising the potential for extreme rate hikes for the asset. That said, analysis suggestion of Bitcoin may not be as affected by rate hikes as it was last year.
Binance Free $100 (Exclusive): Use this link to register and get $100 free and 10% off on Binance Futures for the first month. (terms).
PrimeXBT SPECIAL OFFER: Use this link to register and enter the code CRYPTOPOTATO50 to receive up to $7,000 on your deposit.
