Fed Chairman Says They Are Monitoring Crypto ‘Turmoil, Fraud, Run Risk’

UTC by Bhushan Akolkar · 3 min read
Fed Chairman Says They Are Monitoring Crypto ‘Turmoil, Fraud, Run Risk’
Photo: Brookings Institution / Flickr

Fed chairman stated that they are keenly supervising all regulated financial institutions and have asked them to take extra care in dealing with crypto players.

On Tuesday, March 7, Federal Reserve Chairman Jerome Powell spoke about the current macro environment and the developments in the crypto space.

The Fed Chairman tried to strike a balance stating that they are monitoring the crypto space closely amid the current turmoil. However, he added that they would take care not to stifle innovation. During his testimony with lawmakers at Capitol Hill, Powell said that the Federal Reserve is “quite active” watching all crypto developments.

He also added that all the regulated financial institutions need to take “great care” in how they engage with the crypto space. The Fed Chairman added:

“Like everyone else we’ve been watching what’s been happening in the crypto space and what we see is quite a lot of turmoil, we see fraud, we see a lack of transparency, we see run risk, we see lots of things like that. What we’ve been doing is making sure that the regulated financial institutions that we supervise and regulate are careful and taking great care in the ways they engage with the whole crypto space.”

During the last year of 2022, the crypto space witnessed some of the most high-profile bankruptcies and controversies. What really got the regulators on their toes was the collapse of the crypto exchange FTX in November 2022. The contagion of the FTX collapse spread across the entire crypto space and affected all the associated firms to the exchange, and beyond.

Fed Chairman on Inflation and Rate Hikes

Jerome Powell also shared spoke about the most impact macro indicator today i.e. inflation. Powell cautioned that the interest rates are likely to head higher than what the central bank policymakers had expected.

He spoke about the Fed’s resolve to bring inflation under the targeted 2% and thus warned about a tighter monetary policy going ahead. In his remarks from Capitol Hill, Powell said:

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

This means that the Fed could end up hiking interest rates much higher than previously anticipated. It also increases the chances of 50 basis points rate hikes instead of the quarter percentage points hikes seen last time.

Back in December 2022, the Fed officials had pegged the terminal rate at 5.1%. Now, this could move further to the range of 5.5%-5.75%. Powell added that the current trends in inflation show that their job to fight inflation isn’t over yet. Hinting at a “bumpy” ride going ahead, he added: “We have covered a lot of ground, and the full effects of our tightening so far are yet to be felt. Even so, we have more work to do”.

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