U.S. Federal Reserve Chairman Jerome Powell said Wednesday he thinks capital markets, as typified by the dogecoin craze, are a “bit frothy” and admitted that the central bank’s easy-money policy may have had something to do with that.
In a press conference that followed the Fed’s two-day meeting, 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, which was started as a joke, is up more than 6,000% year to date.
The question was framed amid the backdrop of low interest rates and easy monetary policy that has sparked interest in speculative investnments such as GameStop’s stock and dogecoin.
“You are seeing things in the capital markets that are a bit frothy, that’s a fact,” Powell said. “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 poured new money into financial markets, which, in turn, has had a major impact on cryptocurrencies through asset price inflation.
Powell was upbeat about the prospects for a swifter economic recovery in the U.S., pointing toward “very well-capitalized large banks” and low funding risks among 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,” he said