How Will Elon Musk’s Deflation Warning Affect Crypto
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Tesla CEO and billionaire Elon Musk has warned the US economy. Musk believes the economy is headed for deflation because the central bank is fighting inflation. If Elon Musk’s warning is true, it’s not good news for the crypto market
He believes the Fed’s second major rate hike threatens deflation. The Federal Reserve will announce the next rate hike decision on September 21 at the FOMC meeting.
The Federal Open Market Committee, or FOMC, is the central bank’s monetary policy decision-making body. It is responsible for controlling the money supply in the US economy.
How deflation affects the stock market
Deflation is an economic phenomenon in which the prices of goods and services decrease. Large economies such as the United States analyze price change in an economy by comparing the prices of a “basket of goods and services” over a period of time. The Consumer Price Index published by the US Bureau of Labor Statistics is an important index to measure just this.
Deflation occurs when supply exceeds demand. It can be due to high productivity, a decrease in demand or a reduction in the supply of money in the economy. In the short term, deflation is good news for consumers because commodity prices fall. In addition, the purchasing power of the currency increases.
However, in the long run, the economy may contract due to deflation. Economists believe that deflation can be more dangerous than inflation. The Fed can easily control inflation with quantitative easing. However, it is not easy to contain deflation through quantitative easing.
The increase in the value of the dollar creates a liquidity trap. Investors are cautious while investing in stocks and other risky assets as cash is the best investment during such a period.
How Elon Musk’s Warning Affects Crypto
The crypto market is highly correlated with the general market, especially technology stocks. It is also a significantly riskier asset. If Elon Musk’s deflation warning is true, we can see a serious liquidity crisis in the crypto market.
The presented content may contain the author’s personal opinion and is subject to the market situation. Do market research before investing in cryptocurrencies. Neither the author nor the publication is responsible for your personal financial loss.