Minneapolis Federal Reserve Bank President Neil Kashkari said on CNBC’s “Scokebox” that the central bank is closely monitoring financial markets that signal the expectations of inflation and investors’ confidence amid rising bond yields and a fall in the dollar.
“It’s difficult to read what’s going on below,” Kashkari said, noting that recent market movements reflect both economic uncertainty and changing investors’ feelings as global investment destinations.
Federal Reserve officials acknowledged the potential rise in short-term inflation expectations, saying central bank priorities are preventing these short-term concerns from being embedded in the long-term economic outlook.
“I’m paying attention to the same market movements as you guys,” he said. “The bond market, I’m paying particular attention to trying and understanding what it tells us about the underlying inflation dynamics, and it’s complicated to analyze.”
Refusal of the dollar raises questions amid trade tensions
Kashkari has also been working on the recent weakening of the US dollar, surprising some analysts given the usual “flight to safety” pattern during periods of global economic stress. He noted that a decline in the dollar combined with rising bond yields could undermine confidence in US assets.
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“If an investor decides, ‘Hey, we want to invest elsewhere,’ everything else should be equal, and that should boost yields,” he said. “And you’ll see it in what we call term premium.”
Kashkari said some of the recent market volatility could be attributed to leveraged positions, including hedge funds that settle assets amid the decline in stocks. However, the broader trend suggests that the US may no longer be considered a former default investment destination.
“I always go back to the basics,” Kashkari said. “Why do we have a trade deficit in America? Because investors around the world see America as the best place to invest. If that changes, the entire equation changes.”
What it means for the crypto market
The weakening of the dollar and the uncertainty of sustained inflation, in theory, updates interest as a valuable reservoir of Bitcoin (BTC) and other cryptocurrencies.
Historically, Crypto has benefited during periods of devaluation of Fiat currency or when trust in the traditional financial system is shaking. If investors continue to view the US economy as unattractive, digital assets could come from capital flows in search of diversified, decentralized exposure.
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