In a recent interview with CNBC’s Squawk Box show, Mohamed A. El-Erian, Allianz advisor and president of Queens’ College, Cambridge, said that a move by the Federal Reserve to raise the inflation target from 2-3% could trigger an increase in prices for hedge assets, including cryptocurrencies.
— Squawk Box (@SquawkCNBC) April 18, 2022
Technically speaking, there are a number of reasons why raising the inflation target could make sense. First, it would allow the Fed to provide more stimulus during periods of economic weakness, as it would be able to cut interest rates more deeply into negative territory. Second, it would reduce the likelihood of hitting the zero lower bound on interest rates, which has been a major constraint on monetary policy in recent years.
Of course, there are also risks associated with raising the inflation target. Most importantly, it could lead to higher inflation expectations, which could be difficult to rein in if economic conditions improve.
Overall, there is a case to be made for raising the Fed’s inflation target. However, any decision to do so would need to be carefully considered, as there are risks as well as potential benefits.
That said, El-Erian’s key reason for suggesting the Fed could be pushed to readjust its inflation target from 2-3% has to do with the fact that they are likely to realize that they cannot achieve the initially announced target of 2%. If such scenario took place, it would undermine their credibility.
In this context, El-Erian believes that crypto and gold will go higher.
“The concern for the crypto people is that [the crypto market’s recent] decline is happening at a time when gold is up and hitting almost $2,000,” El-Erian told CNBC.
Meanwhile, Robert Kiyosaki, the best-selling author of ‘Rich Dad Poor Dad,’ recently warned that the world is in trouble. He strongly suggested that investors buy Bitcoin (BTC), gold or silver as a way to overcome the current economic situation.
Kiyosaki also said that he sees bonds as the riskiest investment at the moment.
In conclusion, it is important to consider all the potential implications of a higher Fed inflation target, including how it could impact cryptocurrencies. While there are many factors that will contribute to the price of Bitcoin, Ethereum (ETH) and other digital currencies, a higher Fed inflation target could be one more reason for investors to flock to these assets, which are becoming an inseparable part of the national economy, in search of stability and returns.