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8 News NOW Las Vegas 16 July, 2021 - 06:48pm 7 views

When is Powell testimony?

Powell will testify to the House Financial Services Committee at noon on Wednesday and on Thursday, he will appear before the Senate Banking Committee at 9:30 a.m. Eastern. MarketWatchPowell will stress patience in Capitol Hill testimony this week

The way Fed chair Jerome Powell is talking about inflation seems to be evolving.

Why it matters: The Fed has been employing a very stimulative monetary policy, which is helping boost job growth. But inflation has been running above its target.

Yes, but: As inflation rates rise by more than expected and for longer than expected, repeated references to "transitory" could hurt the Fed’s credibility.

The intrigue: Powell’s most recent written statement referencing inflation made no reference to "transitory." He also never used the word during his lengthy Q&A with committee members.

The big picture: Semantics aside, Duy’s bigger point is that the Fed is communicating that it’s willing to tolerate inflation as long as unemployment remains high.

Threat level: None of this is to say the Fed is turning a blind eye to inflation. Quite the opposite.

The bottom line: The Fed is clearly willing to tolerate a lot of inflation if it means getting employment up. But there is a limit and not even the Fed seems to know where that is.

CEOs are speaking up about what we’ve seen in the government data: inflation. And some of them warn elevated levels of inflation could persist.

Why it matters: Prices for goods and services have been rising at a historic pace, a phenomenon that many economists have characterized as transitory.

The booming economy, with abundant help from both Congress and the Federal Reserve, has one downside: It's causing some prices to rise at a somewhat alarming level. Inflation is now well over 5%, and no one's entirely sure when it might start coming down.

Why it matters: If Democrats in Congress get their way, we're about to see some $4.5 trillion in new infrastructure spending, which can't help but add to inflationary pressures. Inflation alone, however — especially if it's temporary — is not so harmful as to be a reason not to pass such a bill.

Congress is mulling a number of proposals aimed at investing in technology and traditional scientific research and development that could make huge strides on racial diversity in science.

Why it matters: The proposals come as science institutions face pressure to hire and cultivate more teachers of color, diversify research fields and ensure that there is greater diversity in the STEM workforce overall.

Read full article at 8 News NOW Las Vegas

Jerome Powell today: Fed chief says tapering of stimulus "a ways off"

USA TODAY 17 July, 2021 - 08:10pm

Fed chair Jerome Powell will tell Congress that "substantial further progress" toward Fed's employment and inflation goals "is still a ways off"

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Federal Reserve Chair Jerome Powell on Tuesday responded to concerns from Republican lawmakers about spiking inflation by reiterating his view that current price increases will likely prove temporary. (June 22) AP Domestic

Federal Reserve Chair Jerome Powell told Congress Wednesday that “substantial further progress” toward the Fed’s goals of full employment and 2% inflation “is still a ways off,” suggesting the central bank may not be close to reducing massive bond purchases that are holding down long-term interest rates.

“While reaching the standard of ‘substantial further progress’ is still a ways off, participants expect that progress will continue,” Powell said in his prepared testimony  before the House Financial Services Committee. “We will continue these discussions in coming meetings” and provide advance notice before announcing a decision to cut the bond purchases

Powell added that while the labor market largely has recovered from much of the damage inflicted by the COVID-10 pandemic as the economy reopens, "there is still a long way to go."

At its mid-June meeting, a split was evident between Fed policymakers who believe the recent surge in inflation is temporary and those concerned it could last into next year because of supply-chain bottlenecks and worker shortages that are pushing up wages, according to minutes of the meeting. As a result, “various” Fed officials said they expect the conditions for starting to taper down the pace of the purchases will be met “somewhat earlier” than they had anticipated.

The Fed is buying $120 billion a month in Treasury bonds and mortgage-backed securities to push down long-term interest rates, such as for mortgages, in an effort to support economic growth. But annual inflation hit 5.4% in June, a 13-year high, the Labor Department said Tuesday. The surge in prices in recent months is prompting some Fed officials to strongly consider pulling back the Fed's stimulus campaign sooner rather than later.

Many economists expect the Fed to announce the tapering later this year and begin reducing the bond purchases in early 2022.

At the meeting, the Fed held its key interest rate near zero but officials also forecast two hikes in 2023, up from none previously, amid a strong recovery from the coronavirus recession and the spike in inflation.

The prospect of an earlier-than-expected decrease in bond purchases and a sooner rate hike has rattled some investors and contributed to a volatile stock market recently. The Fed has been saying repeatedly that it wouldn’t raise its benchmark rate until the economy returns to full employment and inflation has risen above the central bank’s 2% target “for some time.”

Powell’s assurances that tapering is “still a ways off,” could signal that he and other key policymakers aren’t yet prepared to reduce the bond purchases and are awaiting more economic data in coming months.

But committee Republicans, in particular, repeatedly questioned Powell about whether the inflation spike could last longer than he and other Fed policymakers expect, hurting the recovery. 

Powell said he believes it won’t.

“It’s a perfect storm of high demand and low supply and it shall pass,” he said. He added that price increases should moderate as production and delivery snags ease and supply catches up but prices likely won’t return to their former levels.

Powell also noted that the sharp price increases have been concentrated in goods and services affected by the pandemic and reopening economy, such as used cars, hotel rates and air fares.

But he declined to be more specific about when the Fed may pull back its bond purchases or raise interest rates.

Asked what “substantial further progress” toward the Fed’s goals means, he said, “We didn’t try to write down a particular set of numbers… It’s hugely difficult to be precise about it.”

Noting that inflation has been high for several months, Rep. Anthony Gonzalez, D-Ohio, asked Powell to be more specific about how long inflation needs to hover above its 2% target before the Fed raises rates.

“How long is ‘some time?’” he asked.

Powell said it’s difficult to say. “The question is where does that leave us in six months or so,” he said.” It may be we look back and see that (the threshold of ‘some time’) has been met but it may be we won’t.”

Rep. Trey Hollingsworth, R-Indiana, argued the Fed’s rock-bottom interest rates are no longer helping job growth, which largely has been constrained by worker shortages. .

Powell disagreed. “I do think that monetary policy is supporting demand” in the economy, he said.

In his prepared testimony, Powell said inflation “will likely remain elevated in coming months before moderating.” He attributed the jump in prices in part to a big drop a year ago as consumer demand evaporated in the early days of the pandemic, resulting in a comparatively large price increase. But he said that would disappear as last year’s low prices fall out of the equation.

He also said inflation due to the supply constraints “should partially reverse as the effects of the bottlenecks unwind.”

Powell added that "conditions in the labor market have continued to improve, but there is still a long way to go.” Although labor demand is “very strong,” with job openings at a record high and employers adding 1.7 million jobs from April through June, the unemployment rate remains “elevated at 5.9%,” Powell said. Even the 5.9%, he said, “understates the shortfall in employment” because many Americans have stopped looking for jobs.

Many are caring for relatives or are still fearful of contracting COVID even though the pandemic has eased significantly. Others may be reluctant to give up enhanced unemployment benefits before they expire nationwide in September.

The economy’s rebound, though still robust, has slowed recently, in part because many businesses don’t have the products and workers they need to serve customers. Meanwhile, fueled by the delta variant, COVID-19 cases have increased in states with low vaccination rates. That poses another threat that could temper a recovery that’s still expected to produce robust growth. Oxford Economics recently lowered its growth forecast for this year from 7.7% to 7%, which would still be the economy’s strongest performance since 1984.

© 2021 USA TODAY, a division of Gannett Satellite Information Network, LLC.

Why the Fed hates cryptocurrencies and especially stablecoins

CNBC 17 July, 2021 - 08:10pm

Federal Reserve chair Jerome Powell has been testifying on Capitol Hill this week, and it's pretty clear that he is not a fan of digital coins – especially stablecoins.

During a two-day congressional hearing, the Fed chief said the main incentive for the U.S. to launch its own central bank digital currency, or CBDC, would be to eliminate the use case for crypto coins in America.

"You wouldn't need stablecoins; you wouldn't need cryptocurrencies, if you had a digital U.S. currency," Powell said. "I think that's one of the stronger arguments in its favor."

Central bankers and U.S. lawmakers have for years bemoaned the rise of stablecoins, a specific subset of cryptocurrencies that have a value pegged to a real-world asset, such as a fiat currency like the U.S. dollar or a commodity like gold.

These nongovernmental digital tokens are increasingly being used in domestic and international transactions, which is scary for central banks because they don't have a say in how this space is regulated.

"I understand why they fear stablecoins," said Nic Carter, founding partner at Castle Island Ventures. "I can see why they'd be concerned with a large portion of commercial banking activity flipping over to this largely unregulated world."

But Powell isn't necessarily all that keen on the U.S. launching its own digital token either. There are already close to 11,000 cryptocurrencies, so a digital dollar would be entering a very crowded field.

In response to a question Thursday from Senator Pat Toomey, R-Pa., Powell said that he was undecided on whether the benefits of a digital dollar outweigh the costs.

What is clear, however, is that the Fed is done letting stablecoins run amok.

"We have a tradition in this country where the public's money is held in what is supposed to be a very safe asset," Powell said.

"That doesn't exist for stablecoins, and if they're going to be a significant part of the payments universe…then we need an appropriate framework, which frankly we don't have."

Right now, there are several different types of digital U.S. dollars.

Sitting in commercial bank accounts across the country are electronic U.S. dollars, which are partially backed by reserves, under a system known as fractional-reserve banking. As the name implies, the bank holds in its reserves a fraction of the bank's deposit liabilities. Transferring this form of money from one bank to another or from one country to another operates on legacy financial rails.

There are also a spate of USD-pegged stablecoins, including Tether and USD Coin. Although critics have questioned whether tether has enough dollar reserves to back its currency, it remains the largest stablecoin on the planet. USD Coin is backed by fully reserved assets, redeemable on a 1:1 basis for U.S. dollars, and governed by Centre, a consortium of regulated financial institutions. It is also relatively easy to use no matter where you are.

Then there's the hypothetical digital dollar that would be the Fed's take on a CBDC. This would essentially just be a digital twin of the U.S. dollar: Fully regulated, under a central authority, and with the full faith and backing of the country's central bank.

"A dollar in CBDC form is a liability of the central bank. The Federal Reserve has to pay you back," explained Ronit Ghose, who heads FinTech and digital assets for Citi Global Insights.

There are relative benefits and drawbacks of all these forms. But Powell's contention that CBDCs are a rival to stablecoins misses the larger point of why cryptocurrencies are popular – and it's not simply because they're digital.

"[They're] popular because it's money that's independent of politicians and bankers," said Mati Greenspan, portfolio manager and Quantum Economics founder. "People want the separation of government and money. They clearly don't get that."

Some argue that a CBDC in the U.S. would technically be safer than privately issued stablecoins because it would present a direct claim against a central bank, similar to the U.S. dollar.

But many of the people who deal in stablecoins don't necessarily want safe. They want an easier way of doing business, especially internationally.

"It's just an alternative payments network, built on top of the commercial bank system," said Carter. "It's like open banking on steroids. It is very interoperable, it is relatively transparent, and in theory, you can get faster settlement and faster cross-border settlement, because it's not encumbered."

Stablecoins originally emerged to cater to demand for dollar exposure offshore and overseas, according to Carter. Tether, the world's third-largest cryptocurrency and the biggest of the stablecoins, is primarily transacted outside the U.S.

Alyse Killeen, founder and managing partner of bitcoin-focused venture firm Stillmark, thinks the presence of a digital currency issued by the Fed in no way reduces the value of cryptocurrency.

"Many people recognize the loss of autonomy that occurs when permission to spend is implicit in the use of a currency," says Killeen. "It's a relatively common experience to be blocked from executing a transaction via bank wire, debit card, or credit card when the transaction is attempted after bank hours or outside of your bank-identified personal spending habits," she said.

"A digital currency issued by the Fed...would likely bear the same friction as attempting to initiate a wire on a Sunday."

There are lots of reasons for the Fed to be concerned over the rise of stablecoins.

For one, there's a concern over losing monetary control.

Facebook plans to launch its own stablecoin, diem, later this year, and were it "to succeed in supplanting central bank money in the public's wallets, it would make it more difficult for the Fed to control the money supply or more generally, to conduct monetary policy," according to Rutgers University economist Michael Bordo.

There is also the issue of waning monetary sovereignty.

"Were diem, or even a Chinese CBDC, to be accepted by many other countries, the U.S. dollar would lose its dominance," continued Bordo.

Central banks like the Fed also take issue with the fact that stablecoins look as though they are pegged to fiat currency, even though they aren't backed by the sovereign, but instead by financial assets. Ghose says it's similar to how a money market fund works.

"Stablecoins are like watching a movie that is dubbed – you are not watching the original movie," said Ghose.

This is what really gets under the skin of the Fed. Decentralized cryptocurrencies like bitcoin don't pretend to be the same as fiat, but "stablecoins can give the impression that you are using something with a fixed value to fiat," he said.

Carter thinks the Fed's hostility may stem from its own plans for a CBDC, which it can use to instill monetary policy more granularly and directly.

Carter imagines the CBDC as a "programmable voucher that the Fed could control by twiddling buttons, having total visibility into and control over monetary velocity, making your money expire if not spent within 60 days, completely eliminating disfavorable uses of cash – it's the holy grail for central bankers because it gives them full discretion."

Like them or not, central bankers do agree that stablecoins are here to stay.

Data from The Block shows nearly $110 billion in total stablecoin supply, and it remains on a swift incline.

Unlike his fellow central bankers, Fed Governor Randal Quarles thinks there's no need to fear stablecoins. He also doesn't really get the case for the U.S. launching its own central bank-backed digital dollar.

In remarks made to the Utah Bankers Association in Sun Valley, Idaho this June, Quarles argued that stablecoins could, in fact, advance the role of the U.S. dollar internationally.

"A global U.S. dollar stablecoin network could encourage the use of the dollar by making cross-border payments faster and cheaper, and it potentially could be deployed much faster and with fewer downsides than a CBDC," he said.

Provided that certain regulatory questions can be addressed, Quarles argued that "rather than straining to find ways to say 'no,'" the Fed should be saying "yes" to these products.

"Indeed, the combination of imminent improvements in the existing payments system such as various instant payments initiatives combined with the cross-border efficiency of properly structured stablecoins could well make superfluous any effort to develop a CBDC," continued Quarles.

President Biden will have to decide in October whether to renew Quarles' term as the central bank's vice chair for supervision, which could indicate where the White House falls on the topic of digital currencies.

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Jerome Powell Is Behind the Inflation Curve

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A “Digital Dollar” Doesn’t Fix This

Bitcoin Magazine 16 July, 2021 - 07:00am

During a testimony yesterday afternoon in front of the U.S. Financial Services Committee, Federal Reserve Chairman Jerome Powell commented on the impending central bank digital currency (CBDC) to be launched by the Fed, and how in his mind it would compete with other “cryptocurrencies” and “stablecoins.”

"You wouldn't need stablecoins, you wouldn't need cryptocurrencies, if you had a digital U.S. currency," he said.

The fact of the matter is that the difference between a central bank issued currency and bitcoin in particular is not a technical one (albeit there is, or rather will be, many different technical aspects), but rather a one of governance.

A “digital dollar'' is not all that different from a so-called “analog” dollar today, except the fact that it will probably include less privacy assurances, more censorship and more direct control over supply and monetary issuance.

Bitcoin is valuable because no one can change or manipulate the hard cap of 21,000,000 or the supply issuance. Bitcoin as a monetary asset is uncensorable, unseizable and unable to be manipulated. Anybody can run a node and audit the entire monetary supply with a cheap computer.

Contrast this with what the digital dollar would come with:

In “crypto" that is what is known as a “sh*tcoin.” The fact of the matter is that the U.S. dollar is a far inferior monetary asset than bitcoin, and pricing bitcoin in other denominations shows exactly this.

Below is the chart of BTC/USD over the course of the last five years. 

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