U.S. Federal Reserve Chairman Jerome Powell thinks capital markets, as typified by the dogecoin craze, are a “bit frothy.” He also admitted that the central bank’s easy-money policy may have had something to do with that froth.
In a press conference Wednesday, Powell was asked whether he believed there was a risk to financial stability in trends such as the meme-inspired cryptocurrency. The Shiba Inu-represented crypto, started as a joke, is up more than 6,000% year to date.
The question was framed amid the backdrop of a relationship between low interest rates and easy monetary policy sparking increased interest in Gamestop stock and Dogecoin.
“You are seeing things in the capital markets that are a bit frothy, that’s a fact,” said Powell. “I won’t say it has nothing to do with monetary policy but also it has a tremendous amount to do with vaccination and reopening of the economy.”
In a bid to combat the fallout from COVID-19, central banks around the world have continued to flood new money into financial markets which, in turn, has had a major impact on cryptocurrency through asset price inflation.
Yet chairman Powell was upbeat about the U.S.’s prospects for a swifter economic recovery pointing toward “very well-capitalized large banks” and low funding risks amongst financial institutions.
“What has been moving markets a lot in the last few months is this turn away from what was a pretty dark winter to now a much faster vaccination process and a faster reopening.”