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.
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.