What impact will Powell as next Fed chair have on cryptos?
The White House said Powell “has provided steady leadership” during COVID
US president Joe Biden has announced his intention to nominate Jerome Powell to serve another term as the chair of the US Federal Reserve with Lael Brainard, US Federal Reserve governor, to become vice chair of the Board of Governors of the Federal Reserve System.
The White House stated that the country still faces many challenges as it emerges from the pandemic, however, Powell “has provided steady leadership during an unprecedently challenging period, including the biggest economic downturn in modern history and attacks on the independence of the Federal Reserve”.
This decision can impact the crypto market and heavily influence the US releasing a central bank digital currency (CBDC).
Cryptos and Powell
During the pandemic, bitcoin has reached new all-time highs, with Bloomberg reporting that low interest rates, which the Federal Reserve helped by setting the Fed Funds Rate, has helped cryptos reach new levels.
If the newly re-elected chair of the Federal Reserve does not raise interest rates, it will mean investors will most likely stay positive about the market.
There is also an argument emerging that cryptos are a good bet against inflation, as cryptocurrencies have a limited supply and so, unlike the US dollar or other fiat currencies, they cannot be devalued.
Mike Bailey, director of research at financial services firm FBB Capital Partners, told Bloomberg, “For die-hard crypto bulls, another Powell term may provide some confirmation bias, since these investors often view crypto as a hedge for loose Fed policy.”
Powell and Brainard have shown support for the US releasing a CBDC. In August, Brainard spoke out strongly in favour of a CBDC while speaking at the Aspen Institute’s Economic Strategy Group – and that it is a matter of “urgency” for the US central bank to develop one.
“The dollar is very dominant in international payments, and if you have the other major jurisdictions in the world with a digital currency, a CBDC offering, and the US doesn't have one, I just, I can’t wrap my head around that. That just doesn’t sound like a sustainable future to me,” said Brainard.
Brainard noted that China is making progress with their CBDC, the e-CNY.