This year, the Fed has been relentless in hiking the interest rates in response to rising inflation. Since interest rates are the principal weapon used by the Federal Reserve (the central bank of the United States), to regulate inflation, they tend to fluctuate in tandem with one another.
Recent rises in interest rates by the Federal Reserve have resulted in precipitous declines in the value of cryptocurrencies.
The next Federal Reserve meeting begins on Tuesday, December 13; if these preliminary findings hold, crypto investors may be in for another rollercoaster week.
Janet Yellen Predicts Lower Inflation Rate in 2023
Janet Yellen is an American economist who has been serving as the 78th Secretary of the Treasury of the United States since January 26, 2021. Prior to that, she was the 15th chairwoman of the Federal Reserve, a position she held from 2014 to 2018.
According to an interview that was shown on Sunday’s episode of “60 Minutes” on CBS, the Treasury Secretary said that she anticipates a decline in inflation in the United States in the year 2023.
In her words:
“I believe you will see much lower inflation by the end of next year if there isn’t an unexpected shock.”
When questioned about the possibility of a recession, the economist responded by saying that there is a danger of one. However, in her opinion, doing so is not something that is required in any way in order to bring down inflation.
She went on to remark that there has been a significant deceleration in economic growth and many firms are aware of this. The world saw a fairly quick recovery from the COVID-19 pandemic, and economic expansion was really strong at that time. In addition to this, there was a significant increase in employment, which helped put people back to work.
“We got people back to work. We closed that gap. We have a healthy labor market. To bring down inflation, and because almost everybody who wants a job has a job, growth has to slow,” said Yellen.
Janet Yellen has said that she hopes the recent increase in inflation is just transitory, and that the U.S. government has learned its lesson about the need to manage inflation after what happened in the 70s.
What a Reduction in Inflation Means For The Crypto Markets
A short-term negative link exists between the news of inflation and the price of cryptocurrency at the present time. This is due to the fact that reports of inflation increase the likelihood that central banks will increase their interest rate targets to even higher levels. There is a correlation between an increase in inflation and a decrease in the value of cryptocurrencies.
If, on the other hand, inflation decreases, as indicated by, for instance, a positive reading of the American consumer price index, then the prices of crypto assets, including bitcoin, will increase.
Recession is often anticipated in the case of persistent inflation and interest rate increases. These economic woes have put even Elon Musk on edge. The wealthiest man in the world has been sounding the alarm for months, saying that if the central bank continues its current monetary policies, the economy would go into a serious recession.
If the Fed raises rates again next week, the recession will be greatly amplified
— Elon Musk (@elonmusk) December 9, 2022
A rate rise by the Fed would be a terrible idea in Musk’s opinion. He recently cautioned that the decision will cause a much more severe economic downturn than is now anticipated.