Powell Says No Sudden Rate Hike; "Highly Unlikely" to Repeat 1970s Inflation, U.S. Stocks, Bitcoin Rebound

After Federal Reserve Chairman Jerome Powell clarified concerns about interest rate hikes and inflation, both the stock market and cryptocurrency saw a rebound. He emphasized that it is "highly unlikely" to repeat the inflation disaster of the 1970s.

Federal Reserve Chairman Jerome Powell appeared at a hearing of the U.S. House of Representatives COVID-19 Select Subcommittee on 6/22, acknowledging that inflation is stronger and more persistent than expected, but as the economy reopens and time passes, these issues will be resolved.

Inflation is Only Temporary

In May, the Consumer Price Index (CPI) rose by 5% year-on-year, marking the largest increase since 2008. Powell explained:

They did not take into account factors such as overall economic contraction and slow inflation. All high inflation comes from increases in items like used cars, airfares, hotels due to economic reopening, and so on. This inflation is stronger and more persistent than we expected, but these factors will decrease towards our target over time, and we will closely monitor them.

A Repeat of the 1970s Inflation is Impossible

From the 1960s to the 1970s, the United States printed a large amount of money to support the Vietnam War demand. During this period, oil prices skyrocketed, triggering the first oil crisis and causing stagflation in the United States, with federal interest rates even rising to 20% at one point.

Previously reported, former U.S. President Trump stated that "energy independence" is dead, with oil prices already rising by over 40% this year, and he warned of imminent large-scale inflation. Powell, on the other hand, believes that a 5% inflation rate is unacceptable and is confident that inflation will decrease at some point. He pointed out:

The situation in the 1970s is very, very unlikely to happen. We believe that the rise in inflation is only due to specific goods and services being affected by a high demand for labor, goods, and services, coupled with a somewhat unprepared supply side, mainly because we are experiencing historical events that have never occurred before.

No Sudden Rate Hikes

During the FOMC interest rate meeting in June, out of 8 officials, 13 supported at least one rate hike by the end of 2023. St. Louis Federal Reserve Bank President James Bullard, who has voting rights in 2022, also stated that there will be the first rate hike in 2022, with the year-end inflation rate expected to be between 2.5% and 3%.

Powell stated:

The Federal Reserve will not preemptively raise rates due to excessively high unemployment rates or concerns about worsening inflation. We will patiently wait for actual inflation or other evidence of economic imbalances. The U.S. has a central bank dedicated to price stability and is prepared with various tools to maintain inflation around 2%.

After Powell's remarks, the market also saw a slight improvement, with the Dow, S&P, and Nasdaq Composite indices all rising by 0.2% to 0.8%, and Bitcoin once again surpassing the $30,000 mark.