Today I want to share inflation and interest rates.
As everyone knows, inflation is very high now. June inflation was 9.1 percent, up from 8.6 percent in May and at a four-decade high.
The main reason for high inflation is that the USA adopted the "American Rescue Plan" during the COVID-19 pandemic. It included an increase in the federal minimum wage, direct checks for Americans making $75,000 or less a year, an extension of $400 federal unemployment benefits, and more money for small businesses. The total pandemic-relief tab to several trillion dollars.
The American Rescue Plan Act of 2021 has contributed to inflation. So the Federal Reserve announced several interest rate increases in 2022 as it races to tamp down rapid inflation.
The impact of the interest rate hike on the global financial market is unavoidable. The global financial market has declined in the past six months, including the stock and crypto markets.
But recently, we have seen the dollar index rise, and the euro has tumbled to parity against the US dollar. It’s the first time the euro has sunk to that level since 2002, in the early years of the currency’s existence.
Many people think that the Fed's money printing is an act of drinking poison to quench thirst. The temporary prosperity was followed by record-high inflation. But I think the Fed is waging a currency war. At present, not only the USA, most European countries and developing countries are facing unprecedented high inflation rates. The USA is shifting its government debt through a rise in the dollar index, making global residents pay for the American Rescue Plan.
As a practitioner in the crypto industry, we should always pay attention to the Fed’s policy. The crypto market is closely linked to the global financial market. While the market conditions have not been optimistic these months, once Fed slows the pace of interest-rate increases, I think everything will get better. Considering that Fed’s aggressive rate hikes raise the likelihood of a recession, the Fed is likely to signal a more dovish stance.