Inflation Worries Top Concerns Before Fed Meeting, Spur Musk Comment

Surging prices for food, energy and housing have sent inflation in the U.S. to a four-decade high.

AccessTimeIconMar 14, 2022 at 9:48 a.m. UTC
Updated May 11, 2023 at 6:43 p.m. UTC

Inflation appears to have become a top concern both on Wall Street and main street days before the U.S. Federal Reserve (Fed) decides its response to rising prices.

"What are your thoughts about probable inflation rate over next few years," U.S.-based electric car maker Tesla's CEO, Elon Musk, tweeted late Sunday. Musk added that he would continue to hold bitcoin, ether and dogecoin, even though buying physical assets is often the best way to ride an inflationary wave.

Surging prices for food, energy and housing have sent inflation in the U.S. to a four-decade high and the Russia-Ukraine war is expected to worsen the situation.

"We're likely to see another year in which 12-month inflation numbers remain very uncomfortably high," U.S. Treasury Secretary Janet Yellen said during a CNBC interview last week. The situation in Ukraine has exacerbated inflation and upcoming inflation reports will show "further evidence of an impact on U.S. inflation of (Russian President Vladimir) Putin's war on Ukraine," Yellen added.

The general populace worldwide seems equally worried about a continued rise in costs. According to Google Trends, a widely used tool to gauge general or retail interest in trending topics, returned a value of 100 for the worldwide search query over the past 18 years.

A score of 100 represents peak popularity – the maximum number of searches observed for a term during a given time frame. In other words, more and more people are worried about rising prices and are scanning the web for information on how bad the situation could get and ways to hedge against the same.

Google Trends provides access to a mostly unfiltered sample of actual search requests made to the search engine and measures their searches on a range of 0 to 100, according to the company. The search value represents the search interest relative to the highest point on the chart for the selected region and time.

Google search value for the term "inflation"
Google search value for the term "inflation"

The crypto community and the likes of Musk and MicroStrategy CEO Michael Saylor consider bitcoin as a hedge against inflation, a digital equivalent of gold.

"USD consumer inflation will continue near all-time highs, and asset inflation will run at double the rate of consumer inflation. Weaker currencies will collapse, and the flight of capital from cash, debt, & value stocks to scarce property like bitcoin will intensify," Saylor tweeted in response to Musk's inflation query late Sunday. MicroStrategy, a software company, holds a sizable amount of bitcoin.

And though bitcoin has recently underperformed gold mostly on fears of faster monetary tightening by the Fed, observers remain confident of its long-term use case as a store of value.

"Inflation is likely to be persistently high (but lower than now) for some years. This adds fuel to the bitcoin-as-a-hedge thesis and could encourage even more portfolio allocations to a liquid asset with an independent monetary policy and a hard cap on supply," Genesis Global Trading's daily newsletter dated Feb. 25 said.

Bitcoin was trading near $39,000 at press time, representing a 3% gain on the day. The cryptocurrency found buyers during early Asian hours after Musk tweeted his intention to hold the digital asset.

The Fed is likely to raise borrowing costs by 25 basis points later this week and signal a continued fight against inflation through the rest of the year. The expected first rate hike since 2018 seems to have been priced in by markets. Bitcoin has dropped nearly 40% in the past four months, predominantly on the Fed rate hike fears.


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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.