On a recent episode of The Best Business Show, bitcoin investor Anthony Pompliano shared his thoughts on The Federal Reserve’s latest interest rate hike, arguing that the the agency “has lost all control” of the U.S. economy.
On Wednesday, the Fed announced that it would raise interest rates by a half percentage point to 0.75 percent. This marks the highest individual interest rate hike since 2000, as well as the first time since 2006 that the Fed increased interest rates at back-to-back meetings.
According to Pompliano, the Fed has found itself in what he calls a “lose-lose’ situation, as it seeks to battle rising inflation and the appearance of a second U.S. recession since 2020 – something he says has roots in the lockdown policies employed by the U.S. government throughout the COVID-19 pandemic.
“There was a huge government mandate for everyone to go sit at home. When that occurred there was a liquidity crisis. That liquidity crisis led to stocks selling off by 25%. Gold was down 15%, Bitcoin went down 50% in a single day. There was tons and tons of short term pain. Six million people every week were filing for first time unemployment claims so they had to figure out a solution,” said Pompliano.
He further argues that is only the beginning of the problem, as the Fed needs to address inflation that is at a 40-year high.
“They pumped up asset prices, they stimulated the economy, they used quantitative easing and they manipulated interest rates down to flood the market with cheap capital. What happened? The desired impact. Asset prices went up, but also consumer goods went up as well, and what we saw was the 8.5% inflation that we’re seeing today.”
Fighting a war on two fronts
Raising interest rates may provide an effective economic lever for combating runaway inflation, but it also has a darker side, which risks bringing the U.S. closer towards a second recession.
“They are raising the interest rates at the same time that the economy is shrinking,” Pompliano explained. “As the economy shrinks and you raise interest rates…it further accelerates that shrinking of the economy and pushes you further into a recession-like environment.”
The U.S. central bank now appears to be locked into one of two highly undesirable choices – inflation or recession. It’s not a position that anyone would envy.
“Ultimately they are in a lose-lose situation,” says Pompliano. “In my opinion, the Fed has lost all control.”
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