After months of rising inflation in response to the pandemic and lockdowns, the Federal Reserve is finally slowing the money printer. The central bank has announced that it will scale back its $120 billion monthly bond purchase program starting this month. While a relief for average citizens, the news was followed by a brief Bitcoin price pullback.
Slowing the Government’s Stimulus
As reported by the Financial Times, the news follows months of debate between Fed officials regarding how to best support the market. While they seek to provide stimulus to damaged areas of the economy, they must also be mindful of surging prices.
Across the world, many other central banks have been taking similarly drastic action to curb inflation. The Bank of Canada recently warned that interest rates could rise starting in Q2 of 2022. Furthermore, The Bank of England is expected to raise interest rates for the first time since 2018.
The Federal Open Market Committee has also reduced its purchases of treasury securities by $10 billion per month. Agency mortgage-backed securities will be reduced by $5 billion per month from the US central bank.
Inflation appears to be lasting far longer than the Fed anticipated in certain sectors of the US economy. This is purportedly due to a combination of increased consumer demand, supply chain disruptions, and labor shortages. However, prominent voices in the Bitcoin community maintain that inflation is primarily due to money printing.
Like global investor Mark Mobius mentioned earlier today, the money supply has already risen by 30% since the pandemic started. Granted, that same investor does not see Bitcoin as a legitimate solution.
Bitcoin’s Price Fluctuates
Bitcoin has often been called “digital gold” and praised for its non-inflationary monetary policy. This property theoretically makes it a supreme store of value and inflation hedge, which has attracted investors’ attention. JP Morgan has even recognized a preference for Bitcoin over gold among institutional investors.
However, learning that the US plans to curb inflation near-term appears to have rattled the asset’s price, at least for the short-term. It quickly fell to the $60,000 support after the news dropped. Nevertheless, the price dip was short-lived, and BTC rebounded just as quickly.