In a recent Best of Business Show, Bitcoin investor Anthony Pompliano shared his thoughts on the Fed’s recent rate hike, arguing that the agency “has lost all control over the U.S. economy” right”.
On Wednesday, the Federal Reserve announced that it would raise interest rates by 0.5 percentage points to 0.75%. It marked the highest single rate hike since 2000 and the first rate hike by the Fed in back-to-back meetings since 2006.
According to Pompliano, the Fed finds itself in what he calls a “lose-lose” situation as it tries to deal with rising inflation and the emergence of the second U.S. recession since 2020 – which he says stems from the Fed’s lockdown policy . U.S. government throughout the COVID-19 pandemic.
“The government asked everyone to stay at home. When that happened, there was a liquidity crisis. The liquidity crisis caused stocks to fall 25%. Gold fell 15% in a single day and Bitcoin fell 50% in a single day. Short-term pain. Six million people are filing initial unemployment claims every week, so they have to figure out a solution,” Pompliano said.
He further argued that this is only the beginning of the problem, as the Fed needs to address inflation at 40-year highs.
“They drove up asset prices, they stimulated the economy, they used quantitative easing, they manipulated interest rates down, flooded the market with cheap capital. What happened? The impact of expectations. Asset prices went up, but so did consumer goods, what we’re seeing It’s the 8.5% inflation we’re seeing today.”
Fighting a war on two fronts
Higher interest rates may provide effective economic leverage against runaway inflation, but it also has a dark side that could bring the U.S. closer to a second recession.
“They’re raising interest rates while the economy is shrinking,” explained Pompliano. “As the economy shrinks and you raise interest rates … it accelerates the contraction further and pushes you further into a recession-like environment.”
The U.S. central bank now appears to be stuck in one of two wildly unpopular options – inflation or recession. This is not a position that anyone would envy.
“Eventually they were in a lose-lose situation,” Pompliano said. “In my opinion, the Fed has lost all control.”
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