The Chairman of the US Federal Reserve, Jerome Powell, has just announced that it will now finally be laying off the four-decade-old practice of elevating interest rates to prevent higher inflation rates and replace it with a brand new approach.
This new policy will be officially called the “average inflation targeting.” With this latest approach, allowing inflation to go beyond the conventional 2% target right before the increase in interest rates will be more welcoming for the US central bank. Furthermore, this would also lead the Fed to less likely increase interest rates whenever unemployment rates become unstable. However, this only holds true as long as the inflation goes up with it. This is a stark contrast from the views from before, which directly correlates higher inflation with low unemployment rates.
Powell states that many would initially believe that it is counterintuitive for them to ramp up inflation rates. That being said, the Fed Chair also clarified that inflation rates that are too low or persistently within that territory are risky to the state of the economy.
How the new approach may benefit cryptocurrencies
With the average inflation targeting approach, there would be less pressure on the Fed. This means that they may now presumably keep on printing money in order to rouse the current economy. As a result, there would be more significant amounts of money in circulation for the stock markets and cryptocurrencies.
Emin Gün Sirer, a Cornell Professor, stated that stocks today are overpriced by the conventional metric. Thus, many would turn to other viable investment opportunities – and that is precisely where cryptos come up. Sirer believes that far more investors will take an interest in digital assets sooner rather than later.