Economist Predicts the Fed’s Response to Inflation Will Push Crypto Higher – According to Allianz Chief Economic Advisor Mohamed El-Erian, the Federal Reserve’s response to inflation will drive cryptocurrency values, such as bitcoin, to rise. “This is what you get when you wait much longer to recognize inflation and take action,” he said.
In an interview with CNBC on Monday, economist Mohamed El-Erian examined the US economy, markets, and the Federal Reserve’s approach to inflation.
El-Erian is the president of Cambridge University’s Queens’ College. He was also the CEO and co-chief investment officer of Allianz, the corporate parent of PIMCO, one of the world’s largest investment managers.
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He detailed:
“I believe the markets have recognized that we are dealing with three concerns. One is that we are experiencing high and persistent inflation. The Fed is significantly behind the curve, and the path to orderly deflation is quite tight.”
Companies are now facing growth concerns, according to the economist, as a result of these reasons. He mentioned that Goldman Sachs, an investment bank, released a report on Monday predicting a 35 percent chance of a recession in the next two years.
Following the weekend selloff in various major cryptocurrencies, including bitcoin, the Allianz top economic advisor was questioned about the long-term forecast for the crypto sector.
He continued, “I believe that the issue for the crypto community is that this loss is occurring at a time when gold is skyrocketing and approaching $2,000.” “Because diversification is one of cryptocurrency’s most compelling justifications.” It’s appealing during a time of high inflation. And crypto has never played that role before.”
“There’s a reason for that,” the economist explained, “and it’s because crypto, unlike gold, benefited substantially from all the liquidity injections.” So, in crypto, there’s a tug of war between the understanding that the system as a whole is losing liquidity and its attraction as a diversifier. So far, it’s the liquidity factor that has prevailed.”
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Economist Predicts the Fed’s Response to Inflation Will Push Crypto Higher – El-Erian was also questioned on what might cause the Federal Reserve to adjust its inflation target, as well as what that target might be. “He reacted with the belief that by arriving late, they would be unable to achieve their goal and their credibility would be harmed.”
“They’re also worried that slamming on the brakes overly hard may throw the economy into a long-term rather than a short-term recession.” “They will be seduced, and many people will put pressure on them to raise the target from 2% to 3% as a way out,” he said.