Fed Pivot. Inflation Won? Bitcoin.

Quantitative Easing (QE) is back.

It was confirmed last night that the Fed’s balance sheet increased by nearly $300 billion last week.

Why the pivot?

There is a banking crisis. A number of banks around the world are under immense stress.

Silvergate Bank was shut down. Silicon Valley bank and Signature bank nearly collapsed. The Fed had to step in. Credit Suisse Group, a global investment bank and financial services based in Switzerland needed help by the Swiss National Bank. Just yesterday, First Republic Bank received US$30 billion injection from other major US banks.

What is the problem with this pivot?

Inflation is still high.

After a year of quantitative tightening (QT) and central banks all around the world raising interest rates, inflation is no where near to Jerome Powell’s 2 percent inflation target. They have not won their battle against inflation. Today, US inflation rate is 6 percent.

Here at home, Bank of Canada (BOC) did a semi pivot back about a week ago as it held its key interest rate for the first time in a year. Tragically, Canada’s current inflation rate is 5.92 percent. Similarly, no where close to Bank of Canada’s (BOC) target of 2 percent.

What can be done?

I don’t have an answer. My humble opinion is the US Fed, Bank of Canada (BOC) and other central banks around the world are going to lose the fight against inflation. If the central banks around the world particularly the US Fed continue hiking rates to bring down inflation, the banking crisis will get worse and could get ugly fast. Remember the USD is the global reserve currency. The USD is the most powerful currency in the world and most responsible too.

If they want to prevent the current banking crisis, they will have to stop hiking rates and start cutting rates. Essentially, print more money and increase their balance sheet which they did last week. The issue here is inflation numbers will go up. For inflation, this is like waving a red flag in front of a bull’s face.

The next FOMC meeting will be held next week, March 21 – 22 to be exact. Let’s see what the Fed does.

Bitcoin

Inflation could go higher or could go lower and shock as all. It is impossible to predict. When the US fed prints more money and devalues its currency, we should expect people around the world to look for alternatives. My bet is on bitcoin as always. Critics have criticized that Bitcoin is not the solution. Here is why I disagree.

The next 6-12 months will be rough. Fasten your seatbelts. It is going to be a bumpy ride.

DISCLAIMER : None of this is financial advice. Please be careful and do your own research.