Powell Warns Inflation Isn’t Exactly Transitory, Could Increase

Jerome Powell, the Federal Reserve Chair, has raised concerns about inflation, warning the public that it may not be as transitory as was previously thought. It appears that the Fed is now becoming worried that inflation rates may have a longer-term impact than they had initially anticipated.

Powell’s words come at the same time that Congress has just drafted its new bill aimed to impose greater taxes on crypto as a means of funding infrastructure. If this bill passes, then every crypto transaction must be logged and reported for tax purposes.

The Fed’s Gamble on Inflation

The Fed Chair, Jerome Powell, has stated that inflation is looking much harsher than it did before. In a press conference, he explained:

“As the reopening continues, bottlenecks, hiring difficulties, and other constraints could continue to limit how quickly supply can adjust, raising the possibility that inflation could turn out to be higher and more persistent than we expect”

In other words, inflation is getting a little out of hand for the government, and it appears that the economy is suffering more than the Fed thought it would. Powell has made it clear that inflation is going to be longer-lasting, but he was careful not to refer to it as being either permanent or transitory. 

The term, transitory inflation, has been a buzzword for the Fed throughout this year, with the organization consistently arguing that the current rates will be temporary. Powell has not detached himself from this narrative just yet, but his recognition that inflation is significantly intense suggests that the Fed is getting nervous about its decisions. 

The Fed has been in a strange position– it has been trying to ease the flow of reopening the economy by spending heaps of cash on stimulus packages. This idea has been frowned upon by Deutsche Bank, who argued that doing this would lead to irreparable inflation and could even trigger a recession. Now Ken Langone, billionaire and former chairman of the New York Stock Exchange’s Compensation Committee, has joined the doubters and is also calling for the Fed to re-evaluate its stance. 

Langone has argued that these rates of inflation are not transitory or temporary in any capacity and that government spending is making things significantly worse. If this is true, then it will prove the Fed’s gamble was a failure and their attempts at stimulating the economy have caused the US to face a financial freefall. 

Langone has referred to the situation as “hyperinflation”, and has argued that any plans to continue spending will be to “take a white-hot fire and throw a 5-gallon gas can on top of it.” Not only will the bankers and investors get punished, but so will the average consumer. In fact, he pointed out that this has already happened, noting that the urban consumer price index is as high as it was during the 2008 financial crisis. 

Congress Looks Towards Monitoring Crypto

It is no coincidence that in the same week the Fed Chair discusses extended inflation, Congress releases the draft for its new bipartisan infrastructure bill. The bill aims to increase spending by $550 billion on helping forward the US in a myriad of areas, from fixing roads and bridges, to improving broadband.

While this bill will certainly do a great deal of good within the country, in light of recent inflation worries, it seems problematic. However, Congress did keep this in mind, and came up with a solution of sorts, the only issue is that this solution is experimental, insidious, and maybe even impossible.

To fund this bill, Congress is proposing a strict crypto tax policy– one that demands every crypto user reports every transaction they make using digital assets. This could not only affect brokers but anybody who interacts with crypto, including wallet developers (both software and hardware), DAO token users, and liquidity providers. There is even a chance that it will affect miners. 

It has been reported that these were last-minute additions to the bill. Kristin Smith, Executive Director of the Blockchain Institute, has said that the organization will be pushing against these changes to the bill, calling them “hugely problematic”.

Considering that throughout the year, Congress has been highly critical and dismissive of crypto, using the industry as a final-hour attempt to fund this bill leaves a bitter taste in people’s mouths. Many view this as a sign of disrespect towards the industry, as it shows that the government knows its value, but appears wholly disinterested in nurturing or growing it. 

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