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Source: Сointеlеgrаph

Can we all agree that the Federal Reserve has a plan to deal with runaway inflation? They make. Chairman Jerome Powell almost admitted it. Softening his comments ahead of the previous rate hike, allowing room for maneuver, which gave way to a market recovery, Powell left no comment on the matter. Some damage to the economy and downward pressure on labor markets and higher wages is needed to stop creeping inflation. Whether you understand this logic or believe, like Elon Musk, that such movements can lead to deflation does not matter.

All that matters is what those who vote to raise rates believe, and there is plenty of evidence that they won’t stop until the rate is over 4%. A 75 basis point rate hike on Wednesday only moves us in that direction. This is the third such 75 basis point adjustment and we were almost told it would not be the last. While these rate hikes were historic, they prolong the economic problems associated with them. It’s time for the Fed to be brutally honest about where the economy is and where it’s headed.

Jerome Powell said he is committed to a soft landing for the economy. However, he also said: “Our responsibility for ensuring price stability is unconditional.”

Except that the soft landing he’d like to make is something out of a sci-fi novel. This is something that those who follow the situation do not believe. Former New York Fed president William Dudley acknowledged this, saying, “They will try to avoid a recession. They will try to achieve a soft landing. The problem is that at the moment there are practically no opportunities for this.”

Related: The market won’t rise anytime soon – so get used to the dark times

Cleveland Federal Reserve Bank President Loretta Mester, one of 12 voters in favor of the rate hike, joined Powell in saying the Fed would need to raise rates to more than 4% and keep them there. There is only one question left, and that is not where the interest rate will end up. Q: Why is the Fed insisting on prolonging the pain?

There is no doubt that a 150 basis point rate hike will really shake up the market. The same goes for a 75 basis point raise with the promise of more. There is an advantage to taking the plunge at the same time. By doing this once, Powell could come out and articulate the way forward. He could reassure Wall Street, citizens, and trading partners around the world that a 150 basis point rise is the magic bullet needed to bring down inflation, and that any other movement will be measured in inches, not miles. Instead, Powell noted at his Wednesday press conference that an additional 100 or 125 basis points increase would be needed by the end of the year.

Effective federal funds rate 2010 to August 2022. Source: Federal Reserve Bank of St. Louis.

As with most changes, clear communication is the most important element to get support. Now traders feel betrayed. Initially, the Fed’s forecasts indicated that the 75-point gain was historic and unlikely to be repeated. However, inflation persists. In the long run, an honest approach will lead to more upheaval at the forefront, allowing healing to begin much faster.

The Brookings Institution study Understanding U.S. Inflation in the Age of COVID came to an unsurprising conclusion: the Fed “will likely need to raise unemployment well above its 4.1 percent forecast if it wants to bring inflation down to its 2 percent target by the end of 2024.” “.

The Fed has kept interest rates at historic lows for more than a decade. Investors, companies and society have begun to act as if near-zero rates would be the norm. It is understandable that such a rapid deviation from the norm shocked the markets. And the consequences go far beyond the markets. The consequences of such an increase for public debt are even more agonizing.

However, the increase is coming. There is no doubt about it. To continue the farce that 75 basis points and a number of such additional increases is somehow more acceptable, because the markets do not feel that all this at once is just nonsense. Markets, like investors, deserve to know the truth. Just as importantly, society deserves to start on the road to recovery. We could start this morning. Instead, it will be in the coming months.

Related: What Will Drive Bullish Cryptocurrency in 2024?

For cryptocurrencies, a rate increase should not change trends compared to traditional assets. Any hit to the market will impact both digital and traditional assets. For another bull market to emerge, regulatory reform will be required. This will not happen until next year. The sooner the Fed reaches its magic number, the sooner the economic recovery will begin. Thus, the crypto community should support an accelerated schedule. Rip off the band-aid and let the healing begin while the regulatory requirements are discussed. Then the cryptocurrency will be in a position where it can flourish again.

Richard Gardner is the CEO of Modulus, which creates technology for organizations such as NASA, Nasdaq, Goldman Sachs, Merrill Lynch, JP Morgan Chase, Bank of America, Barclays, Siemens, Shell, Microsoft, Cornell University, and the University of Chicago.

This article is for general informational purposes and is not intended and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are those of the author only and do not necessarily reflect or represent the views and opinions of .

Source: Сointеlеgrаph

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