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Fed Chair Interest Hike Could Lead To US Economy Headed Towards Deflation

Manoj Nair



Fed Chair

The Fed Chair has already intended to initiate measures to combat inflation, and numerous experts are warning it could lead to another bout of recession and deflation. Tesla and SpaceX CEO Elon Musk warned that the US economy could enter another deflation bout.

All eyes are now on the CPI or the Consumer Price Index figures, which will release on September 13. The latest warning from Musk is coming at a time when the Fed Chair is expected to make a jumbo interest hike at the September FOMC meeting.

The doomsday scenario is not painted by ELON Musk alone. Still, several notable experts, including investors and the founder of Scion Asset Management, Michael Burry, predicted a 2008-level economic crisis in the US. Another prominent economist Peter Schiff warned of hyperinflation and said the Fed would enforce quantitative easing precipitating soaring inflation in the economy.

The latest measures will also have a bearing on the crypto sector, which is slowly recovering after a steep fall earlier. The recovery is fueled by a weaker dollar, the industry’s Achilles Heel. Soaring inflation is expected to be reined in by higher interest rates which some experts fear could be 100bpos. If this happens, it could lead to another carnage in the crypto sector. n

Fed Chair Precipitating Deflation

As per Elon Musk, another hefty interest rate hike could mean deflation. Deflation is defined as a fall in the prices of goods and services. Deflation can be precipitated by several factors, including increased productivity and a fall in demand or shrinkage of a nation’s money supply. The latter will be the main causative factor since the Fed is attempting to choke the money supply leading to a fall in Consumer Price Index.

Fed chair Jerome Powell has already decided to introduce hawkish measures and promised more pain for households and businesses. The Fed wants to augment the dollar value, which is unsuitable for the Crypto sector.

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