Finance

To the ears of many, “pricing power” is something of a dirty term. For left-wingers it conjures up images of greedy corporations abusing their market dominance to charge more. For economists it raises the spectre of sticky inflation as companies ratchet up prices to cover higher costs. But from another perspective, pricing power is less of a problem: it enables firms to withstand the kind of inflationary pressures that they are now experiencing. In so doing, it serves as a shock absorber for the economy, forestalling the risk of a recession.The past few weeks have put pricing power in the spotlight in America. According to data published on August 25th, post-tax corporate profits reached 12.1% of gdp in the second quarter, their highest since at least the 1940s (see chart). When companies announced their second-quarter results, dozens noted their capacity to raise prices in the face of higher wages and dearer inputs. Chipotle, a fast-food chain, emphasised that it had sold more expensive burritos to its relatively affluent customer base. The boss of Hilton boasted that, having raised room rates sharply in the face of strong demand, the hotel chain was set for “the biggest summer” in its century-long history. At ibm, a tech giant, an executive reported that the company was at last “starting to capture the reality” of higher costs in its pricing.The combined effect of all these individual corporate decisions is striking. Nearly three-quarters of companies in the s&p 500, America’s main stock index, beat earnings estimates in the second quarter. Overall, their profit margins were roughly 12%, a touch lower than in the same quarter last year but still above their five-year average of 11%. That helps explain the rally in stockmarkets that got going in mid-June. It also adds to the evidence that, despite all the gloomy talk, America’s economy is in reasonably good shape—and is not in recession.If there were a compression in margins, it would be a surefire sign of a downswing in the business cycle. Facing lower profits, firms are forced to find ways to cut costs, which often includes firing workers. When enough do that, it becomes a drag on the rest of the economy. Conversely, chunky margins suggest no such cost-cutting pressure. Thus corporate results of the past couple of months are squarely on the side of resilience.Why are companies doing so well? Unsurprisingly, energy firms have led the pack, benefiting from the surge in oil and gas prices that followed Russia’s invasion of Ukraine in February. Revenues in the s&p 500, including energy companies, were up by nearly 14% in the second quarter compared with a year ago. Excluding energy companies, they were up by 9%, according to FactSet, a data provider.Nevertheless, even allowing for the outperformance of the energy sector, profitability has been impressive. Part of the explanation is that American companies have more market power than a few decades ago, bringing greater stability to their earnings. Laxer application of anti-monopoly laws over the years as well as the return-to-scale of big-tech platforms help account for that. Yet the robustness of profits over the past year is down to something far more basic: the robustness of both consumers’ and companies’ balance-sheets. In nominal terms, final demand has been well above its pre-pandemic trend, fuelled by several rounds of stimulus.The question is how long the good times will last. Pessimism is building as the Federal Reserve raises interest rates to combat inflation. In July a survey of chief financial officers by ubs, a bank, found they were more downbeat about their pricing power over the next 12 to 24 months than they had been in January. Some companies are already cutting back their capital-spending plans, which could spill over into hiring, too. But this is all being done from a position of considerable strength. Aneta Markowska, an economist at Jefferies, another bank, says the Fed may ultimately be forced to induce a recession to curb inflation, but adds that it will have a fight on its hands, in part because of the resilience of profit margins. “It’s like a Mike Tyson economy,” she explains. “It’s a lot stronger than you think, and it’s going to take a lot of work to take it down.” ■ More

In august 2020 Jerome Powell, the chairman of the Federal Reserve, described a shift in the central bank’s policy framework. “The economy is always evolving,” he noted. “Our revised statement reflects our appreciation…that a robust job market can be sustained without causing an unwelcome increase in inflation.” It was a pivot informed by a long period in which prices as often rose by less than the Fed preferred as by more. Two years on, the Fed faces very different circumstances: rock-bottom unemployment, strong wage growth and rates of inflation far above the central bank’s target. On August 26th, at an annual jamboree for central bankers in Jackson Hole, Wyoming, Mr Powell sang a different tune. “Without price stability, the economy does not work for anyone,” he declared, and added that the Fed was prepared to impose economic pain to get inflation back to target. Just how much might be required remains anyone’s guess. But the economists and policymakers gathered under the Teton mountains repeatedly voiced a serious concern: that the global forces which in recent decades helped to keep inflation low and stable may be weakening—or reversing. To misquote Milton Friedman, inflation is often and mostly a monetary phenomenon. Central banks have many tools to constrain spending across an economy, and thus to prevent demand from outstripping supply. But they do their work against an evolving economic backdrop, which may make taming price pressures easier at some times than at others. From the 1980s onwards inflation in the rich world generally fell and became less volatile. The phenomenon is commonly attributed to better monetary policy, but also to benign global conditions relative to those which confronted central banks in the 1960s and 1970s, when economies were battered by falling productivity growth, spend-happy governments and energy shocks. The world may now “be on the cusp of historic change”, as Agustín Carstens, of the Bank for International Settlements, a club for central banks, put it at Jackson Hole. Worriers see a few reasons why inflation may stay high. Government spending and borrowing patterns seem to have changed, for one. Across rich and emerging economies, public-debt loads have soared over the past two decades. As debt burdens rise, markets may begin to fear that central banks will eventually have to help finance governments’ obligations, say by creating new money to buy bonds. That could erode central-bank credibility and raise the public’s expectations of future inflation. The fiscal firepower deployed during the pandemic may also reflect governments’ greater openness to using stimulus to fight recession, which could likewise cause markets to expect more spending and inflation in the future. Work presented at the conference by Francesco Bianchi of Johns Hopkins University and Leonardo Melosi of the Federal Reserve Bank of Chicago suggested that American inflation stood roughly four percentage points higher than it otherwise would have been, thanks to the “fiscal inflation” associated with the $1.9trn stimulus package passed in 2021. Workers are scarcer, too. Population growth in the rich world has slowed dramatically owing to demographic change and lower immigration. In some economies, like America, the pandemic was associated with a further drop in labour-force participation. From the 1990s to the 2010s, global labour supply expanded rapidly as populous economies like China and India became better integrated into the world economy. But that experience cannot be repeated, and ageing is beginning to hit labour supply in parts of the emerging world, as well. Workers may thus enjoy more bargaining power in the future, spurring wage growth and making inflation-fighting central banks’ lives harder. Then there are slow-burning changes to the structure of the global economy. Both emerging and advanced economies engaged in a wave of liberalising reform from the mid-1980s to the mid-2000s. Tariffs fell, while labour and product markets grew more limber. These reforms contributed to a surge in global trade, large-scale shifts in global production, and falling costs across a range of industries. Reform may have bolstered productivity growth, too, which ticked up in advanced economies at the turn of the millennium, and in emerging economies in the 2000s. But the pace of reform fell and productivity growth ebbed after the global financial crisis of 2007-09, while trade came under sustained pressure from trade wars, the pandemic and geopolitical tensions. Globalisation served as a “gigantic shock absorber”, from the 1980s into the 2010s, noted Isabel Schnabel, of the European Central Bank, such that shifts in demand or supply were easily met through corresponding adjustments to production, rather than wild swings in prices. Now that flexibility is at risk. Nowhere to runFor the attending central bankers, this was bracing stuff. But it need not be apocalyptic. Some trends could make a new macroeconomic era a little easier to bear. Demographic change may cut both ways, as Gita Gopinath of the imf noted. Though workers in ageing economies may be scarce, they will also save more, helping mitigate inflationary pressures. And as those at the symposium discussed, changes spurred by the pandemic may yet yield a productivity dividend. Most crucially, there is less intellectual confusion today than there was in the 1970s. As Mr Powell noted, central bankers once needed convincing that they could and should bear responsibility for the level of inflation—a situation that allowed high inflation to rage for more than a decade. Today, by contrast, the Fed’s “responsibility to deliver price stability is unconditional”. Central bankers are beginning to accept that their task may be harder for years to come. That awareness could itself prevent a new era of shocks and volatility from being truly disastrous. ■ More

Check out the companies making headlines before the bell:
Best Buy (BBY) – Best Buy gained 2.6% in the premarket after the electronic retailer beat Street forecasts on the top and bottom lines for its latest quarter, while comparable store sales declined less than expected.

Big Lots (BIG) – The discount retailer reported a smaller-than-expected quarterly loss and better-than-expected revenue. Comparable store sales also fell less than analysts had forecast. The stock rose 2.7% in premarket trading.
First Solar (FSLR) – First Solar rose 1.9% in premarket action after announcing it would spend $1.2 billion to expand U.S.-based manufacturing, including a new factory in the southeast. The solar equipment maker earlier this year had said it was unlikely to build new U.S. facilities, but changed its strategy due to the tax incentives provided by the recently passed Inflation Reduction Act.
Twitter (TWTR) – Twitter fell 1% in premarket trading after Elon Musk sent a second deal termination notice. Musk first announced he was pulling out of his $44 billion deal to buy Twitter in early July. The second notice – detailed in an SEC filing – gives additional reasons for pulling out, including the contention that allegations detailed in the recent whistleblower complaint could have severe consequences for Twitter’s business.
Baidu (BIDU) – Baidu reported better-than-expected profit and revenue for its latest quarter, with the China-based search engine company seeing a recovery in ad sales and stronger demand for its cloud-based offerings. Baidu shares added 3.8% in the premarket.
Bed Bath & Beyond (BBBY) – The housewares retailer’s stock surged 11.7% in the premarket after soaring 25% yesterday. The company – popular among “meme stock” traders – will deliver a business and strategic update Wednesday.

Lucid Motors (LCID) – Lucid filed a so-called shelf offering to raise up to $8 billion. The electric vehicle maker said it has no plans to sell any securities at this time. Lucid slid 1.4% in premarket trading.
Netflix (NFLX) – Netflix is denying a Bloomberg report that it’s mulling a $7 to $9 monthly charge for its upcoming ad-supported streaming service. The company told the New York Post it is still in the early planning stages for the service and that no pricing decisions have been made. Netflix added 1.4% in premarket action.
SolarEdge Technologies (SEDG) – SolarEdge could be subject to an import ban, depending on the results of an International Trade Commission probe. Smaller solar equipment rival Ampt claims that SolarEdge’s power optimizers and inverters infringe two of its patents. SolarEdge gained 1% in premarket trading.
Peloton (PTON) – Peloton needs more time to file its annual report for the year ending June 30, according to an SEC filing. The fitness company said it is still in the process of sorting out accounting related to its planned restructuring. The stock rose 1.4% in the premarket.

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Negative economic growth in the year’s first half may be a foreshock to a much deeper downturn that could last into 2024.
Stephen Roach, who served as chair of Morgan Stanley Asia, warns the U.S. needs a “miracle” to avoid a recession.

“We’ll definitely have a recession as the lagged impacts of this major monetary tightening start to kick in,” Roach told CNBC’s “Fast Money” on Monday. “They haven’t kicked in at all right now.”
Roach, a Yale University senior fellow and former Federal Reserve economist, suggests Fed Chair Jerome Powell has no choice but to take a Paul Volcker approach to tightening. In the early 1980’s, Volcker aggressively hiked interest rates to tame runaway inflation.
“Go back to the type of pain Paul Volcker had to impose on the U.S. economy to ring out inflation. He had to take the unemployment rate above 10%,” said Roach. “The only way we’re not going to get there is if the Fed under Jerome Powell sticks to his word, stays focused on discipline, and gets that real Federal funds rate into the restrictive zone. And, the restrictive zone is a long ways away from where we are right now.”
Despite the Fed’s sharp interest rate hike trajectory, the unemployment rate is at 3.5%. It matches the lowest level since 1969. That could change on Friday when the Bureau of Labor Statistics releases its August report. Roach predicts the rate is bound to start climbing.
“The fact that it hasn’t happened and the Fed has done a significant monetary tightening to date shows you how much work they have to do,” he noted. “The unemployment rate has got to go probably above 5%, hopefully not a whole lot higher than that. But it could go to 6%.”

The ultimate tipping point may be consumers. Roach speculates they will soon capitulate due to persistent inflation. Once they do, he predicts the pullback in spending will reverberate through the broader economy and create pain in the labor market.
“We’re going to have to have a cumulative drop in the economy [GDP] somewhere of around 1.5% to 2%. And, the unemployment rate is going to have to go up by 1 to 2 percentage points in a minimum,” said Roach. “That would be a garden variety recession.”

‘Cold war’ with China

The prognosis abroad isn’t much better.
He expects the global economy will also sink into a recession. He doubts China’s economic activity will cushion the impact, citing the country’s zero-Covid policy, serious supply chain backlogs and tensions with the West.
Roach is particularly worried about the U.S. and China relationship, which he writes about in his new book “Accidental Conflict: America, China and the Clash of False Narratives” due out in November.
“In the last five years, we’ve gone from a trade war to a tech war to now a cold war,” Roach said. “When you’re in this trajectory of esclating conflict as we have been, it doesn’t take much of spark to turn it into something far more severe.”
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A paper released at the same Jackson Hole, Wyoming, summit where Fed Chair Jerome Powell spoke suggests the central bank can’t do the job itself and could make the matters worse with rate hikes.
The paper argues that without constraints in fiscal spending, rate hikes will make the cost of debt more expensive and drive inflation expectations higher.
Many economists, however, expect a variety of factors will conspire to bring inflation down, helping the Fed do its job.

John C. Williams, president and chief executive officer of the Federal Reserve Bank of New York, Lael Brainard, vice chair of the Board of Governors of the Federal Reserve, and Jerome Powell, chair of the Federal Reserve, walk in Teton National Park where financial leaders from around the world gathered for the Jackson Hole Economic Symposium outside Jackson, Wyoming, August 26, 2022.
Jim Urquhart | Reuters

Federal Reserve Chair Jerome Powell proclaimed Friday that the central bank has an “unconditional” responsibility to ease inflation and expressed confidence that it will “get the job done.”
But a paper released at the same Jackson Hole, Wyoming, summit where Powell spoke suggests policymakers can’t do the job by themselves and actually could make matters worse with aggressive interest rate increases.

In the current case, inflation is being driven largely by fiscal spending in response to the Covid crisis, and simply raising interest rates won’t be enough to bring it back down, researchers Francesco Bianchi of Johns Hopkins University and Leonardo Melosi of the Chicago Fed wrote in a white paper released Saturday morning.
“The recent fiscal interventions in response to the Covid pandemic have altered the private sector’s beliefs about the fiscal framework, accelerating the recovery but also determining an increase in fiscal inflation,” the authors said. “This increase in inflation could not have been averted by simply tightening monetary policy.”
The Fed, then, can bring down inflation “only when public debt can be successfully stabilized by credible future fiscal plans,” they added. The paper suggests that without constraints in fiscal spending, rate hikes will make the cost of debt more expensive and drive inflation expectations higher.

Expectations matter

In his closely watched Jackson Hole speech, Powell said the three key tenets informing his current views are that the Fed is primarily responsible for stable prices, public expectations are critical and the central bank cannot relent from the path it has drawn to lower prices.
Bianchi and Melosi argue that a commitment from the Fed simply isn’t enough, though they do agree on the expectations aspect.

Instead, they say that high levels of federal debt and continued spending increases from the government, help feed the public perception that inflation will remain high. Congress spent some $4.5 trillion on Covid-related programs, according to USAspending.gov. Those outlays resulted in a $3.1 trillion budget deficit in 2020, a $2.8 trillion shortfall in 2021 and a $726 billion deficit through the first 10 months of fiscal 2022.
Consequently, federal debt is running at around 123% of gross domestic product — down slightly from the record 128% in Covid-scarred 2020 but still well above anything seen going back to at least 1946, right after the World War II spending binge.

“When fiscal imbalances are large and fiscal credibility wanes, it may become increasingly harder for the monetary authority (in this case the Fed) to stabilize inflation around its desired target,” according to the paper.
Moreover, the research found that if the Fed does continue down its rate-hiking path, it could make matters worse. That’s because higher rates means the $30.8 trillion in government debt becomes more costly to finance.
As the Fed has raised benchmark interest rates by 2.25 percentage points this year, Treasury interest rates have soared. In the second quarter, the interest paid on the total debt was a record $599 billion on a seasonally adjusted annual rate, according to Federal Reserve data.

‘A vicious circle’

The paper presented at Jackson Hole warned that without tighter fiscal policies, “a vicious circle of rising nominal interest rates, rising inflation, economic stagnation and increasing debt would arise.”
In his remarks, Powell said the Fed is doing all it can to avoid a scenario similar to the 1960s and ’70s, when surging government spending coupled with a Fed unwilling to sustain higher interest rates led to years of stagflation — or slow growth and rising inflation. That condition persisted until then-Fed Chair Paul Volcker led a series of extreme rate hikes that eventually pulled the economy into a deep recession and helped to tame inflation for the next 40 years.
“Will the ongoing inflationary pressures persist as in the 1960s and and 1970s? Our study underscores the risk that a similar persistent pattern of inflation might characterize the years to come,” Bianchi and Melosi wrote.
They added that “the risk of persistent high inflation the U.S. economy is experiencing today seems to be explained more by the worrying combination of the large public debt and the weakening credibility of the fiscal framework.”
“Thus, the recipe used to defeat the Great Inflation in the early 1980s might not be effective today,” they said.
Inflation cooled somewhat in July, thanks largely to a drop in gasoline prices. However, there was evidence of it spreading in the economy, particularly in food and rent costs. Over the past year, the consumer price index rose at an 8.5% pace. The Dallas Fed “trimmed mean” indicator, a favorite yardstick of central bankers that throws out extreme highs and lows of inflation components, registered a 12-month pace of 4.4% in July, the highest reading since April 1983.
Still, many economists expect several factors will conspire to bring inflation down, helping the Fed to do its job.
“Margins are going to fall, and that is going to exert strong downward pressure on inflation. If inflation falls faster than the Fed expects over the next few months — that’s our base case — the Fed will be able to breathe more easily,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Ed Yardeni of Yardeni Research said Powell didn’t acknowledge in his speech the role that Fed hikes and the reversal of its asset purchase program have had on strengthening the dollar and slowing the economy. The dollar on Monday hit its highest level in nearly 20 years compared to a basket of its peers.
“So [Powell] may soon regret having pivoted toward a more hawkish stance at Jackson Hole, which soon may force him to pivot yet again toward a more dovish one,” Yardeni wrote.
But the Bianchi-Melosi paper underscored that it will take more than a commitment to raise rates to bring down inflation. They extended the argument to include the what-if question: What would have happened had the Fed started hiking sooner, after spending much of 2021 dismissing inflation as “transitory” and not warranting a policy response?

“Increasing rates, by itself, would not have prevented the recent surge in inflation, given that [a] large part of the increase was due to a change in the perceived policy mix,” they wrote. “In fact, increasing rates without the appropriate fiscal backing could result in fiscal stagflation. Instead, conquering the post-pandemic inflation requires mutually consistent monetary and fiscal policies providing a clear path for both the desired inflation rate and debt sustainability.”

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The Netflix logo is seen on a TV remote controller, in this illustration taken January 20, 2022.
Dado Ruvic | Reuters

Check out the companies making headlines in midday trading.
Catalent Inc. – Shares of pharmaceutical company Catalent fell 7.4% after earnings that disappointed Wall Street. While Catalent beat expectations for earnings, its revenue and full-year outlook were below estimates.

Dow – The chemical maker dropped 1.6% after KeyBanc downgraded it to underweight from sector weight. The bank said in a note that an economic slowdown, especially in Europe, could hurt demand for Dow and squeeze the company’s profit margins.
Honda Motor — Shares of Honda moved 1.8%  higher after it joined forces with LG Energy Solution to build a new battery production plant for electric vehicles in the U.S. The companies, which plan to invest $4.4 billion, aim to begin mass production of advanced lithium-ion battery cells by the end of 2025. 
Pinduoduo — Pinduoduo surged 14.7% after topping estimates in the recent quarter on the top and bottom lines. The China-based e-commerce giant said a recovery in consumer sentiment helped results.
Netflix — Shares of the streaming giant rose 0.6% after a Bloomberg report that its ad tier could cost between $7 and $9 a month.
Bristol-Myers Squibb — Shares of Bristol-Myers Squibb slumped 6.2% after the company reported results from a midstage trial of its developing stroke treatment that failed to meet the main objective of the study.

Energy stocks — Energy stocks jumped in tandem with oil prices rose on news of a potential OPEC+ supply cut. Shares of Diamondback Energy, Marathon Oil, Occidental and Exxon Mobil rose from 2.3% to 4.0%.
Etsy — Etsy added 0.3% following news that it will require U.S. sellers on its platform to verify their bank accounts or provide their username and password to fintech platform Plaid.
— CNBC’s Jesse Pound, Michelle Fox and Carmen Reinicke contributed reporting.

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The rate on a 30-year fixed mortgage will fall to an average 4.5% in 2023, according to Fannie Mae.
Rates have jumped more than two percentage points since the beginning of 2022, largely due to the Federal Reserve increasing borrowing costs.
Consumers shouldn’t necessarily delay a home purchase if they find an affordable home they like now, experts said.

The Good Brigade | Digitalvision | Getty Images

Mortgage rates are projected to decline next year — but that doesn’t mean prospective homebuyers should necessarily delay a purchase for the prospect of lower financing costs.
The rate on a 30-year fixed mortgage will fall to an average 4.5% in 2023, according to a recent housing forecast published by Fannie Mae, a government-sponsored lender.

That dynamic would offer relief to would-be homebuyers who’ve seen mortgage rates balloon this year.
The Federal Reserve started increasing its benchmark interest rate in March to tame stubbornly high inflation, which has resulted in higher borrowing costs for consumers — who may feel a sense of whiplash from 2020, when rates bottomed out near historically low levels.
More from Personal Finance:13 states may tax student loan forgivenessFewer Americans living paycheck to paycheck as inflation starts to easeHow to figure out if you qualify for student loan forgiveness
Average rates are expected to be 4.7% and 4.4% in the first and fourth quarters of 2023, respectively — down from 5.2% in Q2 this year, according to Fannie Mae.
Still, consumers should “take forecasts with a grain of salt,” according to Keith Gumbinger, vice president of HSH, a market research firm.

“If you’re participating in the marketplace, interest rates are important but might not be the most important component,” Gumbinger said.

How mortgage rates impact your wallet

Rates for a 30-year fixed mortgage — the interest rate of which doesn’t change over the loan’s term — have jumped more than two percentage points since the beginning of 2022.
Rates averaged 5.55% the week of June 23, according to data from Freddie Mac, another government-sponsored entity. That’s up significantly from 3.22% the first week of January though a slight decline from the 5.81% high point in June.
Even a seemingly small jump in mortgage costs can have a big impact on consumers, via higher monthly payments, more lifetime interest and a smaller overall loan.

Here’s an example, according to HSH data: At a 3.5% fixed rate, a homebuyer with a $300,000 mortgage would pay about $1,347 a month and $185,000 in total interest over 30 years. At a 5.5% rate, homeowners would pay $1,703 a month and pay over $313,000 in interest for the same loan amount.
Here’s another example, which assumes a buyer has an $80,000 pretax annual income and makes a $30,000 down payment. This buyer would qualify for a $295,000 mortgage if rates were 3.5%, about $50,000 more than the same buyer at a 5.5% rate, according to HSH data. That differential may put certain home out of reach.

What prospective buyers should consider

Many consumers have turned to an adjustable-rate mortgage instead of fixed mortgages as borrowing costs have swelled.
Adjustable-rate loans accounted for more than 12% of mortgage applications in both June and July this year — the largest share since 2007 and double the percentage from January this year, according to Zillow data.
These loans are riskier than fixed rate mortgages. Consumers generally pay a fixed rate for five or seven years, after which it resets; consumers may then owe larger monthly payments depending on prevailing market conditions.

You could chase better numbers for years on end in some cases if things don’t go your way.

Kevin Mahoney
founder and CEO of Illumint

Kevin Mahoney, a certified financial planner based in Washington, D.C., favors fixed-rate loans due to the certainty they provide consumers. Homebuyers with a fixed mortgage can potentially refinance and lower their monthly payments when and if interest rates decline in the future.
More broadly, consumers should largely avoid using mortgage estimates like Fannie Mae’s as a guide for their buying decisions, he added. Personal circumstances and desires should be the primary driver for financial choices; further, such predictions can prove to be wildly inaccurate, he said.
“You could chase better numbers for years on end in some cases if things don’t go your way,” said Mahoney, founder and CEO of millennial-focused financial planning firm Illumint.

But prospective buyers can perhaps risk waiting if they don’t have a rigid timeline for a purchase and have cushion in their budgets in case mortgage rates don’t move as projected, Mahoney added.
Consumers who find a home they like — and can afford to buy it — are likely better served jumping on the opportunity now instead of delaying, Gumbinger said.
Even if borrowing costs improve next year, overall affordability will likely still be a challenge if home prices stay elevated, for example, he added.

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Bankruptcy filings from Celsius and Voyager have raised questions about what happens to investors’ crypto when a platform fails.
Rafael Henrique | Sopa Images | Lightrocket | Getty Images

Bitcoin dropped below $20,000 on Monday as investors dumped risk assets after the Federal Reserve affirmed its commitment to an aggressive tightening path.
The world’s largest digital currency tumbled 5% from Friday’s close to hit a low of $19,526 overnight, a level unseen since July 13, according to Coin Metrics data. Other major digital tokens also sold off, with ether falling to $1,423, its lowest level in a month.

The sharp decline in cryptocurrencies coincided with a big sell-off in U.S. stocks, triggered by Fed Chairman Jerome Powell’s a stern commitment to halting inflation at Jackson Hole. The Dow Jones Industrial Average shed 1,000 points Friday after Powell said he expects the central bank to continue raising interest rates in a way that will cause “some pain” to the U.S. economy. Futures pointed to more losses on Monday.
“Bitcoin weakened after Fed Chair Powell didn’t blink with his reiteration that the Fed will tighten policy to bring down inflation,” said Edward Moya, senior market analyst at Oanda. “Risky assets are struggling as Powell’s fight against inflation will remain aggressive even as it will trigger an economic slowdown.”
Bitcoin declined more than 3% last week for its third negative week in four. The cryptocurrency is down over 50% this year and remains 70% off of its all-time high price of $68,990.90 hit in November.
The crypto market has been plagued by a number of issues including the collapse of algorithmic stablecoin terraUSD, which sparked a chain of events that led to the bankruptcy of lending platform Celsius and hedge fund Three Arrows Capital.

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