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US Lawmakers Push For Urgent Stablecoin Regulation — Fed Warns Of Stablecoin Runs, Janet Yellen Cites UST Fiasco

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US Lawmakers Push For Urgent Stablecoin Regulation — Fed Warns Of Stablecoin Runs, Janet Yellen Cites UST Fiasco

As U.S. lawmakers push for the urgent regulation of stablecoins, the Financial Stability Oversight Council (FSOC) and the Federal Reserve Board warn about the risks of stablecoin runs that threaten the country’s financial stability. Treasury Secretary Janet Yellen brought up the terrausd (UST) fiasco as an example of why a comprehensive regulatory framework is urgently needed.

Treasury Secretary Janet Yellen Testifies Before Senate Committee

Stablecoins have become a hot topic in Washington. Following Monday’s terrausd (UST) fiasco, U.S. lawmakers are calling for the urgent regulation of stablecoins.

On Tuesday, U.S. Treasury Secretary Janet Yellen brought up UST as an example of a “stablecoin run” during her testimony before the Senate Committee on Banking, Housing, and Urban Affairs on the Financial Stability Oversight Council (FSOC) Annual Report.

Senator Pat Toomey (R-Pa.) asked Yellen to confirm her view on the need to regulate stablecoins. “I would like to ask if you can confirm for the record here that it is still your view that it is important, I would argue even urgent, for Congress to pass legislation governing the regulations of the payment stablecoins,” he said.

Yellen replied:

Yes, I’m happy to confirm that, Senator Toomey.

She continued: “The president’s working group issued a report concluding that the current statutory and regulatory frameworks don’t provide consistent and comprehensive standards for the risks of stablecoins as a new type of payment products, and urges Congress to enact legislation to ensure that stablecoins and such arrangements have a federal prudential framework.”

The treasury secretary elaborated: “I would urge a bipartisan action to create such a framework. We would look forward to working with you.” She added:

There was a report this morning in the Wall Street Journal that a stablecoin known as terrausd [UST] experienced a run and had declined in value.

“I think that simply illustrates that this is a rapidly growing product and there are risks to financial stability and we need a framework that’s appropriate,” Yellen stressed.

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Toomey quickly responded: “It’s important to note that the stablecoin to which you refer, I believe, is an algorithmic stablecoin. So that means by definition it is not backed by cash or securities as the — if you can call them — ‘more conventional stablecoins.’”

The stablecoin terrausd (UST) lost its parity with the U.S. dollar and dropped to an all-time low of $0.66 per unit on Monday.

Financial Stability Oversight Council Annual Report Warns About Stablecoin Runs

The FSOC annual report also states that stablecoins may be vulnerable to run risks. Noting that “the potential for the increased use of stablecoins as a means of payment raises a range of prudential concerns,” the report states:

If stablecoin issuers do not honor a request to redeem a stablecoin, or if users lose confidence in a stablecoin issuer’s ability to honor such a request, runs on the arrangement could occur that may result in harm to users and the broader financial system.

Federal Reserve Board’s Report on Financial Stability Says Stablecoins Are Prone to Runs

The FSOC’s view on stablecoins is shared by the Federal Reserve. The Board of Governors of the Federal Reserve System published its semi-annual Financial Stability Report Monday similarly warning about the run risks of stablecoins.

Among the risks discussed in the report is “funding risks,” which “expose the financial system to the possibility that investors will ‘run’ by withdrawing their funds from a particular institution or sector,” the report details, elaborating:

Some types of money market funds (MMFs) and stablecoins remain prone to runs.

In addition, “The stablecoin sector continued to grow rapidly and remains exposed to liquidity risks,” the report notes.

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Federal Reserve, financial stability, Janet Yellen, pat toomey, Stablecoin, stablecoin regulation, stablecoin risks, stablecoin run, Stablecoins, TerraUSD, terrausd unpeg, UST, ust fiasco, ust run, UST Stablecoin

What do you think about Treasury Secretary Yellen’s comments and the warnings by the Federal Reserve and the Financial Stability Oversight Council on stablecoins? Let us know in the comments section below.

Kevin Helms

A student of Austrian Economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open-source systems, network effects and the intersection between economics and cryptography.

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Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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2008 Financial Crisis

Peter Schiff Warns Economic Downturn In The US ‘Will Be Much Worse Than The Great Recession’

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Peter Schiff Warns Economic Downturn In The US ‘Will Be Much Worse Than The Great Recession’

Following the Federal Reserve’s rate hike on Wednesday, economist Peter Schiff has had a lot to say since the U.S. central bank raised the benchmark rate by half a percentage point. Schiff further believes we are in a recession and says “it will be much worse than the Great Recession that followed the 2008 Financial Crisis.”

Peter Schiff Says ‘Fed Cant Win a Fight Against Inflation Without Causing a Recession’

While many analysts were shocked by the U.S. Federal Reserve’s move, since it was the largest rate hike since 2000, a report by schiffgold.com says the increase was hardly “aggressive,” and akin to a “weak swing that looks more like shadow boxing.” Moreover, the report explains Powell’s commentary this week contained some “subtle changes,” which suggest there might be “some economic turbulence on the horizon.”

Peter Schiff doesn’t think the Fed can beat the current inflationary pressure America is dealing with today. “Not only can’t the Fed win a fight against inflation without causing a recession, it can’t do so without causing a far worse financial crisis than the one we had in 2008,” Schiff explained on Thursday. “Worse still, a war against inflation can’t be won if there are any bailouts or stimulus to ease the pain,” the economist added.

I remember how strong #StockMarket pundits and economists thought the U.S. economy was right before the 2008 Financial Crisis, even though we were already in The Great Recession at the time. It wasn’t strong, it was a bubble about to pop. Today’s economy is an even bigger bubble!

— Peter Schiff (@PeterSchiff) May 5, 2022

Schiff’s comments come the day after the Fed increased the federal funds rate to 3/4 to 1 percent. Following the rate increase, the stock market jumped a great deal, fully recovering from the prior day’s losses. Then on Thursday, equity markets shuddered, and the Dow Jones Industrial Average had its worst day since 2000. All the major stock indexes suffered on Thursday and cryptocurrency markets saw similar declines.

“If you think the stock market is weak now imagine what will happen when investors finally realize what lies ahead,” Schiff tweeted on Thursday afternoon. “There are only two possibilities. The Fed does what it takes to fight inflation, causing a far worse financial crisis than 2008 or the Fed lets inflation run away.” Schiff continued:

The Fed created the 2008 financial crisis by keeping interest rates too low. Then it swept its mess under a rug of inflation. Now that the inflation chickens it released are coming home to roost, it must create an even greater financial crisis to clean up an even bigger mess.

Schiff Criticizes Paul Krugman, Fed Tapering Includes Monthly Caps

Schiff is not the only one that believes inflation can’t be tamed, as many economists and analysts share the same view. The author of the best-selling book Rich Dad Poor Dad, Robert Kiyosaki, recently said hyperinflation and depression are here. The well-known hedge fund manager Michael Burry tweeted in April that the “Fed has no intention of fighting inflation.” While criticizing the U.S. central bank, Schiff also railed against the American economist and public intellectual, Paul Krugman.

“Back in 2009, [Paul Krugman] foolishly claimed that QE wouldn’t create inflation,” Schiff said. “Setting aside that QE is inflation, Krugman prematurely took credit for being right as he didn’t understand the lag between inflation and rising consumer prices. The CPI is about to explode higher.” Moreover, schiffgold.com author Michael Maharrey scoffed at the Fed’s recent tapering announcement as well. Maharrey further detailed how the Fed plans to reduce the Federal Reserve’s securities holdings over time.

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“As far as the nuts and bolts of balance sheet reduction go,” Maharrey said, “the central bank will allow up to $30 billion in U.S. Treasuries and $17.5 billion in mortgage-backed securities to roll off the balance sheet in June, July, and August. That totals $45 billion per month. In September, the Fed plans to increase the pace to $95 billion per month, with the balance sheet shedding $60 billion in Treasuries and $35 billion in mortgage-backed securities.”

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2008 Financial Crisis, Central Banks, Crypto, dow jones, Economic Downturn, Fed, Fed Chair, Fed Tapering, Federal Reserve, gold, Great Recession, inflation, Inflationary pressure, jerome powell, MBS, Monetary Supply, Paul Krugman, Peter Schiff, QE, Rate Hike, Schiff, Schiffgold, stocks, US Central Bank, US economy, us treasuries, Wall Street

What do you think about the recent commentary from Peter Schiff concerning the Fed fighting inflation and the rate hike? Let us know what you think about this subject in the comments section below.

Jamie Redman

Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 5,000 articles for Bitcoin.com News about the disruptive protocols emerging today.

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Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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50 bps

Strong US Dollar Posts 5-Week High, Markets Price In A 75 Bps Fed Rate Hike For June

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Strong US Dollar Posts 5-Week High, Markets Price In A 75 Bps Fed Rate Hike For June

While precious metals, stocks, and cryptocurrencies saw a significant downturn this week, the U.S. dollar tapped a 20-year high against the Japanese yen and a number of other currencies. The greenback has seen five weeks of consecutive gains following the Federal Reserve’s 50 basis point rate hike on Wednesday.

Greenback Climbs Higher Amid Economic Uncertainty

Before the U.S. central bank’s rate hike, the U.S. dollar tapped a two-year high and a 20-year high against the Japanese yen last week. Economic concerns are tied to the ongoing and strict Covid-19 lockdowns in China and the Ukraine-Russia war. Reports note that Beijing may plan to mass-test 20 million people for Covid-19 and the Chinese capital could get locked down.

U.S. dollar currency index on May 6, 2022.

Moreover, Refinitiv data indicates the market is predicting a 90% chance the Fed will implement a 75 bps hike in June. A majority of financial institutions and market participants correctly predicted Wednesday’s 50 bps increase. Futures markets are forecasting that the chance of a 75 bps hike taking place in June is around 75%.

Statistics show the U.S. dollar index (DXY) reached a 20-year high against a basket of international fiat currencies this past week. Besides the 20-year high against the yen, sterling saw the deepest impact against the greenback. Kit Juckes, a currency strategist at Societe Generale SA, says the U.S. dollar has a knock-on impact.

“The dollar’s rally is like an uphill avalanche,” Juckes said on May 4. “Just as an avalanche picks up snow, rocks, trees and anything else in its path as it slides down a mountain, the dollar’s rally has the knock-on impact of causing more currencies to weaken. A broad-based move, though, tightens global monetary conditions, and so downside economic risks grow.”

Strong Labor Market and Nonfarm Payrolls Report Could Change Fed’s Decision

Investors think the recently published Nonfarm Payrolls (NFP) report numbers could affect the Fed’s next rate hike decision. ”A strong payrolls report could perversely push the market to price in more tightening as the Fed reduced its optionality at its most recent meeting,” analysts at TD Securities said in a statement on Friday. The TD Securities analysts added:

That leaves a resilient USD vs EUR and yen very much the path of least resistance. A softer wages print should help to temporarily take the edge off but this will be short-lived until evidence of a peak/moderation in CPI emerges.

The combination of a strong dollar and the recently published NFP numbers, could make the predicted 75 bps rate increase become a reality. Although it’s still uncertain, analysts at ANZ Bank believe this could be the case. “Whilst the Fed is not currently considering a 75 bps rate increase, that guidance is based on expectations that the trend increase in monthly Nonfarm payrolls will slow and core inflation is stabilising. But there are no guarantees at all that that will be the case.” The ANZ Bank researchers concluded:

Demand for labour in the U.S. remains very strong and core services inflation is rising steadily. The April non-farm payroll and employment reports — [will] carry a lot of significance.

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50 bps, 75 bps, Analysts, ANZ bank, beijing city, China, Covid-19 lockdowns, Fed, Federal Reserve, Greenback, Kit Juckes, NFP report, Nonfarm Payrolls, payrolls, Rate Hike, Refinitiv data, Societe Generale SA, Strong Dollar, TD Securities analysts, Ukraine-Russia war, US Dollar, USD, USD vs EUR

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What do you think about the strong dollar and the chance the Fed will increase the benchmark interest rate by 75 bps? Let us know what you think about this subject in the comments section below.

Jamie Redman

Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 5,000 articles for Bitcoin.com News about the disruptive protocols emerging today.

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Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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2022

US Central Bank Raises Rates By Half A Percentage Point, Fed’s Powell Says Similar Hikes Are On The Table

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US Central Bank Raises Rates By Half A Percentage Point, Fed’s Powell Says Similar Hikes Are On The Table

The U.S. Federal Reserve raised the benchmark interest rate on Wednesday and the increase was the biggest rate hike in two decades. “Inflation is much too high,” the central bank’s chair Jerome Powell said after the Fed raised rates by 0.5%.

FOMC Decides to Hike Rate by 3/4 to 1% — Increase Was the largest Rate Hike in 2 Decades

  • On May 4, 2022, the U.S. central bank raised the benchmark interest rate in order to curb rising inflation. The Federal Open Market Committee (FOMC) explained on Wednesday in a press release that the 12 FOMC members “decided to raise the target range for the federal funds rate to 3/4 to 1 percent.”
  • The Federal Reserve also said the central bank “anticipates that ongoing increases in the target range will be appropriate.” Additionally, the FOMC statement issued at 2:00 p.m. (ET) said that the Ukraine-Russia war and the Covid 19-related lockdowns in China have made “implications for the U.S. economy highly uncertain.”
  • Speaking to reporters after the FOMC decision, Fed chair Jerome Powell said: “Inflation is much too high and we understand the hardship it is causing and we are moving expeditiously to bring it back down.” The central bank’s chief added that there was “a broad sense on the committee that additional 50 basis-point increases should be on the table for the next couple of meetings.”
  • The May 4, 3/4 to 1 percent increase is the second rate hike in 2022 after the Fed raised the benchmark rate on March 16, 2022. At that time, the Fed raised the interest rate from near zero to 0.25% in order to target 0.25% and 0.50%
  • The FOMC statement further added that the United State’s economic activity had “edged down in the first quarter” and stressed that the “[inflation] remains elevated.”
  • In addition to the rate hike, the Fed plans to taper back its Treasury securities and mortgage-backed securities spending.
  • “The committee decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in conjunction with this statement,” the FOMC statement concluded.
  • Despite the rate increase, crypto markets were positive on Wednesday as the crypto economy rose 5.7% over the last 24 hours. The price of bitcoin (BTC) jumped 5.6% higher and ethereum (ETH) spiked by 6.5% against the U.S. dollar.
  • Furthermore, stocks rallied as well on Wednesday afternoon, as the top U.S. stock indexes (NYSE, Dow Jones, Nasdaq, S&P 500) saw significant gains. For instance, the Dow Jones Industrial Average jumped over 900 points on the bet that the central bank’s move was a correct one.
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2022, 2023, Bank Rate, Central Bank, Covid-19 pandemic., Crypto, Cryptocurrencies, DOW, Economy, Fed, Fed Chair Jerome Powell, Federal Reserve, FOMC, FOMC Meeting, gold, inflation, Interest Rate Hike, jerome powell, nasdaq, NYSE, pandemic, price pressures, Rate Hike, US Central Bank, US economy

What do you think about the Federal Reserve raising the benchmark interest rate by 3/4 to 1%? Let us know what you think about this subject in the comments section below.

Jamie Redman

Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 5,000 articles for Bitcoin.com News about the disruptive protocols emerging today.

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