With rising inflation in response to the pandemic and lockdowns, the Federal Reserve has finally decided to slow the money printer.
As of this month, the central bank has indicated that it will begin to pull back its monthly bond purchase program of $120 billion, which was previously disclosed. While the news was welcomed by the general public, it was followed by a slight decline in the price of bitcoin.
Slowing the Federal Government’s Stimulus Program
According to the Financial Times, the announcement comes after months of disagreement among Federal Reserve officials over the most effective way to assist the market. While attempting to offer stimulation to the economy’s most troubled areas, policymakers must simultaneously keep an eye on the rising cost of goods and services.
Many other central banks around the world have been taking such extreme measures to contain inflation in recent months. The Bank of Canada recently stated that interest rates could begin to climb as early as the second quarter of 2022. The Bank of England is also likely to raise interest rates for the first time since 2018 for a variety of reasons.
Aside from that, the Federal Open Market Committee has lowered its monthly purchases of government securities by a total of $10 billion. The Federal Reserve will lower the amount of agency mortgage-backed securities it purchases by $5 billion per month.
In certain sectors of the US economy, inflation looks to be continuing much longer than the Federal Reserve had predicted. This is attributed to a mix of increased consumer demand, supply chain interruptions, and labour shortages, according to the report. Some notable voices in the Bitcoin community, however, claim that inflation is primarily caused by the creation of new money.
According to renowned investor Mark Mobius, who spoke earlier today, the money supply has already increased by 30 percent since the pandemic first began spreading. To be sure, that same investor does not believe that Bitcoin is a real answer to the problem.
The price of Bitcoin fluctuates
Bitcoin has been referred to as “digital gold” and hailed for its non-inflationary monetary policy, which has contributed to its widespread adoption. As a result of this quality, it is considered to be the ultimate store of value and inflation hedge, which has piqued the interest of investors. According to JP Morgan, institutional investors prefer Bitcoin over gold, and this preference has been recognized.
However, the news that the United States intends to contain inflation in the near future appears to have sent the price of the asset tumbling, at least in the short term. After the news broke, it soon slipped to the $60,000 level of support. Nonetheless, the price decline was short-lived, and Bitcoin recovered almost as rapidly as it had fallen.
