6 Lessons the Federal Reserve Needs to Learn From Bitcoin

The oldest institution has lessons to learn from the newest system.

At the end of the day on March 15, 2020, the Federal Reserve continued its program to support the American economy, which has been hit hard by the spread of the coronavirus around the world. While the Federal Reserve had already decided to cut interest rates by 50 basis points on March 3, 2020, this time it decided in emergency to cut them by 100 basis points.

Federal Reserve interest rates are now between 0 and 0.25%. You read that correctly. The red line of zero rates has just been crossed by the Federal Reserve in a historic move that was immediately hailed by Donald Trump.

It must be said that Donald Trump had been calling for this cut for months in order for the Federal Reserve to align itself with the European Central Bank rates, which are even negative.

In addition to this interest rates cut, the Federal Reserve has also taken other key measures to stimulate the American monetary system for the umpteenth time:

Another round of quantitative easing for $700B this time. In details the Fed will buy $500B in treasuries and $200B in mortgage-backed securities.

0% reserve requirement rate for banks.

With this last measure, banks will be able to lend, or more precisely print, as much money as they want.

The purpose of this new monetary stimulus was to meet Wall Street’s expectations, which had not been satisfied with the Fed’s previous announcements last week.

However, Wall Street’s reaction seems to indicate that this monetary stimulus from the Federal Reserve is being rejected by the market. For example, the Dow Jones is losing nearly 8% at the time of writing:

Dow Jones price evolution

The losses were even greater at the opening of this session on March 16, 2020, as the Dow Jones was almost -10% at the time when trading was automatically halted.

The Federal Reserve has probably not finished with its actions to reassure Wall Street. In the coming weeks, or perhaps even before, I am even willing to bet that the Federal Reserve will follow the path of the European Central Bank by proposing negative interest rates.

A more intensive program of quantitative easing is also to be expected before the summer in my opinion.

All this shows once again that this system is no longer tenable. From my point of view, the Federal Reserve, and in general all the central bankers of the world, have several great lessons to learn from Bitcoin.