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Former Fed Official Says Double Dip in Economy is Possible

Dennis Lockhart, who served as the president of the Atlanta Federal Reserve for a decade, believes the U.S. economy may experience a “double-dip.” Considering the Fed’s new policy which targets a 2% average inflation rate, Bitcoin could stand to benefit.

If the “Pessimistic” Double-Dip Scenario Happens, Bitcoin Could Rise

The U.S. economy is gradually recovering as states reopen their respective economies. New data shows that the economy has started to pick up momentum, triggered by businesses resuming operations across many states.

Despite the positivity surrounding the U.S. economy’s rebound, Lockhard said a pessimistic scenario could result in a double-dip. The former Fed official mentioned the possibility of a fresh wave of COVID-19 cases, which could cause jobless claims to soar again. He said:

“I continue to believe that looking forward you have to consider a range of scenarios and among those scenarios would be, obviously, a pessimistic one and that could be a double dip. If things go badly with the management of the virus and there’s more cascading — which (Thursday’s) numbers of initial claims might suggest — then yes, it’s possible we have a double dip. I don’t think that’s probably the base case, but I think it’s still possible.”

If the economy sinks, the Fed would likely introduce more stimuli, which include bond purchases and potentially negative interest rates, to aid economic recovery. 

10T Holdings co-founder Dan Tapiero noted the Fed would stay “super easy” until the unemployment rate remains below 5%. The fear of inflation and the increase in liquidity would provide a favorable macro backdrop for Bitcoin. 

“School openings key to Fed policy, economy, gold and Bitcoin. Unemployment rate stays high, Fed stays super easy until unemployment rate below 5%. Brake on economy. Bond yields trend toward 0, supports gold, pressures Usd down. Btc up on global SoV.”

Lockhart Hints Fiscal Boost

According to Lockhart, if the pessimistic scenario plays out, the Fed would have to deal with it through fiscal policy. He explained:

"If there’s going to be an effective effort to really ward off a worst-case scenario, particularly for portions of the American public that are most vulnerable, then it’s going to come from the fiscal side.”

The thought of the Fed pursuing even more aggressive initiatives than its current policies could buoy the sentiment around Bitcoin and gold over time.

written by

Joseph Young is a financial analyst based in South Korea. He has covered Bitcoin and the crypto market since 2013. He regularly contributes to the BTC Times, Forbes, and Cointelegraph.