Key Takeaway: Subjective monetary policy despite decade-high inflation numbers illustrates the attractiveness of bitcoin's fixed, disinflationary supply schedule.
While Jerome Powell and the Federal Reserve battle the media, traders, and investors on whether inflation is transitory or not, the truth is, inflation is here for now. Last Tuesday, the headline US Consumer Price Index rose 5.4% year-over-year (the highest since 2008) with the core measure rising 4.5% (the highest since 1992). On a month-over-month basis, both headline and core numbers rose 0.9%, reflecting the economic reality many Americans have experienced over the last couple of months.
Despite decade-high numbers (or even longer) in the CPI print, Federal Reserve Chair Jerome Powell said it was still too soon to scale back the central bank’s aggressive support for the U.S. economy.
So what will it take? The cost of living continues to rise while the Fed remains lackadaisical in their Average Inflation Targeting regime. Members of the Senate Banking Committee questioned Chairman Jerome Powell for two days last week, as US citizens face the brunt of rising cost such as gas, groceries, used autos, and homes.
Even so, the FOMC maintains a subjective, broad stance on the timing and size of their tapering plan, creating continued uncertainty from traditional investors. The Fed's Balance Sheet currently stands at $8.2 Trillion, with the NY Fed maintaining purchases of $120 billion in assets per month.
So Why Bitcoin?
Inflation uncertainty is one reason why bitcoin remains attractive in the current environment. Bitcoin has a known, finite, and immutable supply structure. While the Federal Reserve remains subjective, bitcoin investors find reassurance in owning a scarce, disinflationary asset. With bitcoin, it is certain that there will only be 21M bitcoin in existence, with annual supply inflation now below 2% for the foreseeable future.
In the chart below, we illustrate Bitcoin’s expected circulating supply increases over the next 5 years: