Powell thinks rate hikes alone will not slow down gas prices

GB Market Commentary 23/06/2022

by Marcus Sotiriou

Bitcoin continues to consolidate above $20,000 whilst the fear of a recession continues. Concerns around the impacts of persistent inflation were exacerbated yesterday as the Federal Reserve Chairman Jerome Powell testified before the Senate Banking committee.

Senator Elizabeth Warren asked Powell if he expects interest rate hikes to bring down gas and grocery prices. Powell replied “I wouldn’t think so, no.” If interest rate hikes are unable to bring down inflation, then it is likely that the American economy will be forced into a recession. Goldman Sachs’ economists now see an increased risk of a U.S. recession. They explained, “we are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply,”

The Goldman research team now sees a 30% probability of the U.S. economy entering a recession over the next year, up from 15% previously. In addition, the firm sees a 25% conditional probability of a recession in the second year if one is avoided in the first. That implies a 48% cumulative probability in the next two years versus 35% previously, the publication conveyed.

Jerome Powell also said on Wednesday that a recent, much-debated move by the SEC has thrown a potential wrench into common practice for how the U.S. central bank and banking regulators view digital assets held by lenders. I suspect after the recent events with Celsius that the U.S. will provide more clarity soon on regulation towards custodial providers and lenders to bring more stability to the crypto space.