Heinrich thinks the increase in public debt is one of the factors that would cause a recession. Economist Gael Sánchez considers it is necessary to return to the strategy the Fed implemented in 2020 to favor the Bitcoin market.
The US Federal Reserve (Fed) has remained firm in its policy of increasing interest rates to restrict economic expansion and stimulate savings. The strategy includes the recent record increase of 75 basis points, the highest since 1994. It seeks to control inflation, which has achieved a record of 8.6% for May, the highest in 40 years.
However, the Fed might change its strategy if the following rate increases favor economic recession rather than reducing inflation. Economist Sven Heinrich, the founder of NorthmanTrader, recently stated on Twitter that the rise in interest rates goes against their downward trend.
Heinrich also said the growth in the US public debt, already exceeding USD 30 billion, is a significant factor for a recession.
A graph by the Fed shows that the highest rates, aiming to reach 3.8%, break their downward trend. Heinrich argues that another increase in interest rates will meet or exceed the capitulation trend of the Fed. Meanwhile, the ever-increasing public debt will cause a recession, and they will have to take action to lower rates.
Among the responses to Heinrich, some users draw attention to the contradictory messages from the Fed. They recall that Jerome Powell denied planning to increase interest rates by 75 points when announcing the 0.5% rate hike on May 5th. However, the US central bank finalized the rate increase of 75 basis points (0.75%) on June 15th.
The users also discussed what happened between 1981 and 1982, when the Fed announced systematic increases to combat inflation. They said this caused the worst recession since the 1928 crash, only surpassed by the economic crisis in 2008.
The Fed May Change Course to Allow Monetary Expansion to Return
Other more radical positions state that the Fed will move from restrictive policies to monetary expansion. Economist Gael Sánchez considers that raising rates lead to a severe economic crisis with credit restrictions.
Sánchez believes it possible to solve this situation with a monetary expansion policy. He explained that credit spreads continue to push to the upside, risking the health of the financial economy.
He considers that the only way to stop this is by printing banknotes and buying financial assets. In other words, he thinks it is necessary to return to the strategy the Fed implemented in 2020. At that time, the COVID-19 pandemic brought much economic activity to a standstill.
The economist said that this scenario would be very favorable to the market of Bitcoin, according to Sánchez. He stressed that the cryptocurrency would go to the fifth moon of Saturn when the market found out what was coming.
Bitcoin is trading at around USD 20,097 and has accumulated a 6.1% loss over the last 24 hours. While its daily trading volume is above USD 23.38 billion, its market capitalization is about USD 383.69 billion, according to CoinGecko.
By Alexander Salazar
