How will the Fed’s 2% inflation target affect Bitcoin?

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While analysts believe that Bitcoin needs to maintain a level of price volatility in order to be widely accepted as a global currency; It seems that the fundamental indicators of this digital currency have been much less affected by the increase in interest rates and the revision of the target inflation rate by the Federal Reserve.

To Report Cryptoslit, the inflation rate of Bitcoin decreased from 50% in 2011 (1390), just before the halving of 2020 (1399), to 4% and now it has reached 1.7%. A figure lower than the 2% target monetary inflation rate of the Federal Reserve.

How will the Fed's 2% inflation target affect Bitcoin?
Bitcoin inflation rate chart

While this rate shows the rapid acceptance of Bitcoin by the mainstream; The fundamental indicators of this digital currency are not affected by the negative growth of the US GDP in 2022. Meanwhile, the pressure on the US Federal Reserve to revise the 2% inflation target is increasing.

According to reports, the Federal Reserve should review the 2% target inflation rate due to the increase in interest rates and the benefit-cost of the monetary inflation rate of 4%.

Some experts argue that an increase in the inflation rate will lead to an increase in the average nominal interest rate; which creates enough space for the implementation of monetary policies and possibly eliminates the risk of creating a liquidity trap and limiting the capacity of the central bank to stimulate economic growth.

Despite the fact that the price of Bitcoin is sensitive to macroeconomic events and inflation data, blockchain proponents believe that this technology can help reduce inflation and solve the world’s monetary problems; Because Bitcoin seems to have maintained the stability of its fundamental indicators following macroeconomic problems.

Satoshi Nakamoto designed Bitcoin in such a way that its monetary inflation rate is fixed when the number of coins in circulation reaches 21 million.

How will the Fed's 2% inflation target affect Bitcoin?
Bitcoin monetary inflation rate chart

Bitcoin’s unique deflationary features are used to control the price as well as the supply volume. However, the coin faced strong backlash from a section of the fintech community who believed that Bitcoin’s high volatility rate would negatively affect its investors.

Despite all the criticism, price volatility has played an important role in the success of Bitcoin and other altcoins. Of course, analysts believe Bitcoin needs to maintain some level of price stability in order to remain a top-performing global currency.

In addition to all this, unlike fiat currencies such as the US dollar, whose inflation rate can be adjusted, Bitcoin’s inflation rate is predictable and cannot be controlled by centralized institutions.


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