Swamponomics: Federal Reserve Leaving Bitcoin Alone – For Now

America Not Banning Bitcoin – Yet

After the Chinese government clamped down on the cryptocurrency market and the People’s Bank of China (PBoC) essentially declared that crypto transactions were illegal, bitcoin and its brethren of virtual tokens experienced a nosedive. After that, however, the digital currency market might have a new lease on life, giving the bulls some newfound energy to drive up the price of bitcoin, dogecoin, and litecoin.

Speaking in front of the House Financial Services Committee on the Oversight of the Treasury Department's and Federal Reserve's Pandemic Response, Fed Chair Jerome Powell confirmed that the United States does not have any plans to prohibit bitcoin and other cryptocurrencies.

The head of the Eccles Building got into an exchange with Rep. Ted Budd (R-NC), explaining that he had misspoken when there was some suggestion this past summer that the Fed would take action on crypto. Powell assured lawmakers that the institution has "no intention to ban" cryptocurrencies. When asked about stable coins, the head of the world's most powerful organization compared them to bank deposits and money markets, averring that "They’re to some extent outside the regulatory perimeter, and it’s appropriate that they be regulated. Same activity, same regulation."

With the Fed in the early stages of devising a central bank digital currency (CBDC), the sector had widespread concerns that the century-old monetary policy body would choose to rein in bitcoin and the market of 12,000 tokens. But, for now, Powell is giving the nation his word that the Fed will not go to war with bitcoin.

This resulted in a substantial rally in the crypto market following a steep slump. At the closing bell on Friday, bitcoin prices traded above $47,000, while Ethereum kicked off October above $3,200.

Give Our Love to the S&P 500?

Whenever there is a session whereby the Dow Jones Industrial Average sheds 500 points, or the Nasdaq Composite Index loses 1.5%, this is always expected to be the beginning of a steep downturn. However, a day or two later, the stock market is back to its winning ways, which has been the case since the meltdown in March 2020. If investors jumped in at or near the bottom, they are raking in the dough today and adding to their net worth.

According to the Bank of America, stock market holdings represent approximately half of the $109.2 trillion of financial assets U.S. households owned through the second quarter of 2021. This is the highest equity share of assets in 70 years, causing some consternation within the financial sector.

The country's longest bull market in its history ended in early 2020, but it quickly powered up a few months later and has extended to enormous record highs this year. But can Wall Street maintain this momentum and ensure households can grow their wealth?

Mitchell Goldberg, president of ClientFirst Strategy, told CNBC that so long as the stock market goes up, Americans will continue to pour money into individual stocks, indexes, and exchange-traded funds (ETFs). "They’re going to keep putting money into it until there’s a better place to put it," he noted.

That said, the financial institution has noticed a modest uptick in the sale of stocks in recent weeks. This has prompted the financial institution to urge clients to trim some of their holdings and build up cash amid an uncertain future. This has been a shared opinion throughout the New York Stock Exchange, with more money managers urging investors to start increasing their cash positions.

Liberty Nation recently reported that, for the first time this year, there was net selling of equities in the week ending Sept. 22. Net outflows totaled $28.6 billion, the largest outflow from U.S. securities in more than three years. Where did investors place their money? Cash. Whether this is the writing on the wall or not, it is clear that the broader financial markets will not replicate the astronomical gains that were seen in the aftermath of the first wave of the COVID-19 public health crisis.

Transitory if Off the Table

One word has routinely rolled off the lips of White House officials and central bankers: Transitory. Considering that Fed Chair Jerome Powell and Treasury Secretary Janet Yellen keep warning about hot inflation running longer than expected, however, it appears that transitory has yet to unfold.

Speaking in an interview with Fox News, White House economic adviser Jared Bernstein revealed that inflation would remain elevated longer than the administration had anticipated. He thinks the inflation rate will hit 4% this year, but he also believes that inflation will tick lower in the second half of 2022. Like economic figures, Bernstein is placing the blame on supply-side factors for the inflationary boom.

According to the Bureau of Economic Analysis (BEA), the personal consumption expenditure (PCE) price index soared 4.3%, the highest level since May 1991. This is a critical measurement because it is the central bank's favorite inflation measurement. Everyone is befuddled as to how inflation could be so high and long-lasting. It turns out that the vision of the anointed is a bit blurred.

~ Read more from Andrew Moran.