On Tuesday (August 30), U.S. stocks, as well as the two most valuable cryptoassets, fell after comments from the New York Fred President and the governor of the Bank of Estonia suggested that the major central banks are from getting inflation under control.
As CNBC reported earlier today, U.S. stocks dropped for a third day in a row, with the Dow, the S&P 500, and the Nasdaq Composite currently (as of 3:56 p.m. UTC on August 30) down 0.77%, 0.91%, and 1.07% repectively.
John Williams, President and CEO of Federal Reserve Bank of New York, said at a virtual event hosted by the Wall Street Journal:
“I do think with demand far exceeding supply, we do need to get real interest rates … above zero. We need to have somewhat restrictive policy to slow demand, and we’re not there yet… We’re still quite a ways from that.“
And Madis Müller, governor of Estonia’s central bank (i.e. the Bank of Estonia) told Reuters:
“I think 75 basis points should be among the options for September given that the inflation outlook has not improved… Still, I’m going into the meeting with an open mind and I want to both see the new projections and hear my colleague’s arguments… We should not be too timid with policy moves as inflation has been too high for too long and we are still far below the neutral rate.“
Rod von Lipsey, managing director at UBS Private Wealth Management, told CNBC:
“Investors are coming to terms with the idea that the Fed is serious about curbing inflation, even as recent data suggests inflation is starting to decline… We believe the market’s summer rally was ephemeral and continue to recommend that investors remain selective and focus on defensive stock sectors like health care and dividend-paying stocks.“
Of course, we should also remember that last Friday, Federal Reserve Chair Jerome Powell gave an important speech at the 2022 Economic Policy Symposium (in Jackson Hole, Wyoming), which was hosted by the Federal Reserve Bank of Kansas City.
In a speech titled “Monetary Policy and Price Stability”, Powell said:
“The Federal Open Market Committee’s (FOMC) overarching focus right now is to bring inflation back down to our 2 percent goal. Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy. Without price stability, the economy does not work for anyone…
“Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance. Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.
“July’s increase in the target range was the second 75 basis point increase in as many meetings, and I said then that another unusually large increase could be appropriate at our next meeting. We are now about halfway through the intermeeting period. Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook. At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases.“
Anyway, since Bitcoin and Ethereum are still high-beta risk-on assets that seem strongly correlated with U.S. tech stocks, both are also currently in the red, with the action in the U.S. stock market helping to push the Bitcoin price below the $20K level.
According to data by TradingView, on Bitstamp, currently (as of 4:18 p.m. UTC on August 30) $BTC and ETH are trading around $19,883 (-2.22%) and $1,533 (-0.13%) respectively.
Featured Image via Pixabay