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As fears of rising inflation get real, Fed Chairman Jerome Powell admits that it is no more transitory. While the Dollar Index (DXY) surged, everything including Gold, stocks, Bitcoin, and commodities corrected.
On Tuesday, November 30, Fed Chairman Jerome Powell recently warned about inflation fears getting real, which had an impact on both stocks and Bitcoin which had an impact. The Fed Chairman also added that inflation is more than just a “transitory” problem and that tapering could occur sooner than expected. Powell commented:
“We tend to use the word transitory to mean that it won’t leave a permanent mark in the form of higher inflation,” he said. “I think it’s probably a good time to retire that word and try to explain more clearly what we mean,” he commented while further adding that the “risk of higher inflation has increased.”
Federal Reserve Chairman Jerome Powell just suggested that we stop using the word "transitory" when speaking about inflation.
“I think it’s probably a good time to retire that word and try to explain more clearly what we mean.”
It was never transitory and everyone knew that.
— Pomp 🌪 (@APompliano) November 30, 2021
Soon after the comments made by the Fed Chairman, Bitcoin (BTC), stocks and commodities came under pressure. On Tuesday, November 30, The Bitcoin price surged to above $59,000 levels. However, the price has dropped back again to $57,000 levels once again. As of press time, Bitcoin is trading at $57,155 with a market cap of $1.079 trillion.
The Bitcoin price correction followed the correction in the US stock market and commodities. On Tuesday, Dow Jones (INDEXDJX: .DJI) ended 1.86% down losing more than 650 points and ending at 34,483 levels. Similarly, the S&P 500 (INDEXSP: .INX) also crashed 1.6% falling 76 points and ending the trading at 4,579 levels.
Fears Surrounding the Omicron Covid Variant Spread
The spread of the newly emerged Omicron Covid variant has put major pressure on the stock market and the crypto market in general. Powell also added that this new variant poses “downside risks to employment and economic activity and increased uncertainty for inflation”.
Bitcoin has been often touted as a hedge asset class to the traditional stock markets. Many also popularly call it Digital Gold. Surprisingly, along with Bitcoin, the Gold price also corrected. On the other hand, the Dollar Index (DXY) surged. Speaking of this, CryptoQuant analyst Jan Wuestenfeld said:
“US dollar index appreciating on Powell remarks that the FED might speed up taper (no matter how believable). Everything else going down. Gold included.”
On the other hand, former treasury employee Nik Bhatia said that the Fed reacts in a “binary way”. He added that the Fed “doesn’t have the ability to react to dynamic conditions”. “If things are going well, it can tighten policy. If the economy is in trouble, it eases policy,” said Bhatia.
Bhatia believes that inflation has been running hot in the US. There have also been multi-decade high increases in aggregate price levels. “The Fed is clearly heading into a policy error in which it tightens policy despite longer-term growth and inflation expectations coming down, due to tighter monetary policy itself (that’s why it’s called policy error),” he further noted.