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How Fed Chairman Powell's Jackson Hole Speech Is Setting Bitcoin Up For Success

On August 27th, Federal Reserve Chairman Jerome Powell delivered his much-awaited speech on U.S. monetary policy. Analysts say that Powell’s comments, which indicated that increased and continued inflation should be expected, are set to bolster Bitcoin's long-term price trajectory. 

What Did Jerome Powell Say?

Jerome Powell's speech was part of the annual economic policy symposium. While the symposium is usually held in Jackson Hole, Wyoming, this year, it took place online.

During the speech titled "New Economic Challenges and the Fed's Monetary Policy Review," Powell revealed that the Federal Reserve will be giving a "robust updating" to its monetary policy framework. 

The central banker first iterated the importance of the 2% annual inflation rate as the Federal Reserve's target: 

"The monetary policies of the Volcker era laid the foundation for the long period of economic stability known as the Great Moderation… We have not changed our view that a longer-run inflation rate of 2 percent is most consistent with our mandate to promote both maximum employment and price stability."

As Powell explained, the current mechanisms used to achieve this level of inflation may result in periods of slow growth below 2%, which "poses serious risks to the economy." 

Enter "average inflation targeting," a mechanism that will entice the Federal Reserve to keep interest rates low in order to depress the unemployment rate. This means inflation will likely run "moderately" above the 2% target in the future. 

The comments made by the economist are especially relevant as central banks tighten and ease monetary policy in tandem. That's to say, if the Federal Reserve is dovish, other economies can be put at a disadvantage if the local central bank is tightening monetary policy. This also applies vice-versa.

Effects on Bitcoin and the U.S. Dollar

Since the speech, all major financial markets, save for the U.S. dollar, have performed extremely well.

According to data from TradingView, since the time of the speech, Bitcoin has gained 5.5%, gold has gained 2.5%, the S&P 500 has gained 1%, and the U.S. Dollar Index has dropped by 1.1%. 

While Powell's comments on the continued inflation of the U.S. dollar — and of all fiat currencies, for that matter — have sat well with investors in financial markets, they are poised to especially benefit Bitcoin, according to a number of investors.

The reason why comes down to the fact that the Federal Reserve is now pledging to do anything it can to stop deflation. Deflation has been consistently touted by central banks as the monetary enemy number one, so to say, with Japan's flagging economy being used as a poster child for this sentiment. 

Raoul Pal, the CEO of Real Vision and a former hedge fund manager, noted that Powell's comments "play to the inherent upside skew in both assets." In saying that persistent periods of growth below 2% pose “serious risks," Powell is effectively indicating that there is "ZERO tolerance" for deflation, Pal explained. Thus, “ANYTHING" will be done to stop that monetary trend from unfolding. 

To Pal, this persistence in the fight against deflation will result in a positive price performance for "the two hardest assets — Gold and Bitcoin." 

Others that have touched on this narrative include Mike Novogratz, CEO of Galaxy Digital, and pseudonymous Bitcoin analyst "PlanB." Both have stated that the Federal Reserve's ongoing commitment to monetary inflation will drive investment into Bitcoin.

With the Eurozone, Japan, and other segments of the global economy moving towards deflation, central banks are once again poised to turn on their printing presses. Bitcoin stands to benefit in such an environment.

written by

Nick is a writer and analyst who has been following Bitcoin since 2013. When he is not writing, he works on HTC's Bitcoin phone, EXODUS.