Fed Chair Jerome Powell Says Dogecoin and Gamestop Hype Highlights ‘Froth in Equity Markets’

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Federal Reserve chairman Jerome Powell said today that the “froth in equity markets” is one of the biggest threats to the nation’s economic stability. In a speech at the University of Pennsylvania’s Wharton School of Business, Powell said that an asset bubble “could pop” in the United States if the Federal Reserve fails to take appropriate action. That action, Powell said, will focus on a “more stringent regulatory environment” and “stronger oversight of financial institutions.”

The chairman of the Federal Reserve, Jerome Powell, has said that the dramatic rise of dogecoin and gamestop stocks over the past few days is a symptom of froth in the equity markets. Powell, who took over the Fed from Janet Yellen in February, said the situation was similar to the dotcom bubble in the late 1990s. “It’s something we’re looking at very carefully,” he said. “We have a responsibility to maintain financial stability, and we don’t want excessive speculation in the markets.

Federal Reserve Chairman Jerome Powell addressed a number of topics this week, including inflation and central bank digital currencies (CBDCs), following a multi-day meeting of the Federal Open Market Committee (FOMC). A leading central banker was asked about feverish stocks like Gamestop and the crypto asset Dogecoin. Powell said the Federal Reserve is committed to financial stability, but noted that some things in the financial markets are a bit frothy.

Fed chairman on inflation: Committee aims for inflation slightly above 2%

This week’s FOMC meeting revealed that the Fed intends to continue monetary easing until it is satisfied that the economic impact of the pandemic has been eliminated. The FOMC meetings were also accompanied by press conferences where Fed Chairman Jerome Powell answered questions from various news outlets. Powell talked about the federal funds rate and inflation, he was also asked about digital currencies and things like Gamestop stock and the recent Dogecoin (DOGE) rally.

Initially, Powell was inundated with questions about inflation, and one reporter pointed out that some think the Fed is letting things get out of hand with new policy. A reporter asked the Fed chairman if the central bank can keep inflation under control before it significantly exceeds the 2% target. Given the Fed’s success in keeping inflation below 2% for some time, Powell noted that the committee is aiming for inflation of just over 2% for some time to come.

Powell also noted:

The Fed is determined to achieve its goals of maximum employment and price stability.

Despite China’s leadership in creating a digital central bank currency, Powell says the U.S. dollar remains the global reserve currency

The Fed chairman was also asked if the US is lagging behind countries like China in the race to create a central bank digital currency (CBDC). We are committed to understanding the technology and all the policy issues, Powell said in response to questions from CBDC.

Central bank digital currencies are now possible, and we will see some around the world, Powell added. And we must determine if this is a good thing for the people we serve. How is this supposed to work in our system? There are some very, very difficult questions that need to be answered, and we are engaged in a serious program to understand both the technology and the policy issues.

The Federal Reserve chairman said that in his view the dollar is still very strong and stressed that the US dollar is the world’s reserve currency.

This means that the dollar is used for transactions all over the world, much more than any other currency. And that’s because of our rule of law, our democratic institutions, which are the best in the world, our economy, our hard-working people, all those things that make America the United States, Powell said.

Gamestop and Dogecoin shares

A reporter noticed the buzz around certain markets such as dogecoin (DOGE) and Gamestop shares. The reporter said people in this market are looking for returns and questioned whether the Fed feels responsible for America’s current financial stability. Is the Fed worried about financial stability at this point? the reporter asked the Fed chairman. Powell responded by saying that the financial stability the Fed provides is quite broad, and that the central bank doesn’t jump on one particular problem and then move on to the next.

Financial stability is real for us, we have a broad framework. So we’re not jumping from one thing to another, Powell replied. I know a lot of people just look at asset prices and pay attention to some of the things that are happening in the stock market that I think reflect a rise in the stock market. But what we’re really trying to do is stick to the financial stability framework so that we talk about it the same way every time and we can be held accountable, the Fed chairman added.

Just as Powell has defended megabanks in the past by invoking the so-called strength of established financial institutions, this week he again positioned Wall Street banks as strong financiers.

Blaming the financial system is not the problem. We have large, well-capitalized banks, Powell said at the press conference.

What do you think of Jerome Powell’s comments on inflation, CBDCs, and hot capital markets? Let us know what you think in the comments below.

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