The Fed’s efforts to fight inflation by raising interest rates and killing demand may have limited results as long as the supply side of the inflation problem is not fixed, according to macro analyst Lynn Alden.
“Until the supply side of certain things is fixed, like energy in particular, but goods at scale and the logistics infrastructure, until that is improved, it’s hard to get a more stable solution to the inflation problem,” Alden told Cointelegraph in an exclusive interview.
Jerome Powell’s Jackson Hole speech sent a clear signal that the Federal Reserve was determined to continue its efforts to tame inflation, lowering it to a 2% target. This will come at the cost of more pain to the economy, higher unemployment and the risk of a recession.
“They’re going to tighten until they break something or even cause enough stagnation,” Alden explained. “At that point, they might turn a pivot.”
Alden noted that crypto markets are unlikely to recover until the Fed does not direct its interest rate policy. In the long run, central banks will not be able to maintain positive interest rates, mainly due to the high level of public debt burdening more advanced economies.
“A lot of the major developed countries have the inability to reach positive real rates and keep them at that,” Alden said.
This, according to Alden, will favor rare assets like Bitcoin in the long run.
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