The pandemic may have caused 200,000 business closures – fewer than expected

Store closed coronavirus
A store closure in New York.

  • A Fed survey found that 200,000 extra US businesses have permanently closed in the past year.
  • That’s on top of the estimated 600,000 businesses that close in a given year.
  • Small businesses were not hit as hard as expected, which could be because of government aid.
  • See more stories on Insider’s business page.

In recent years, Federal Reserve economists have estimated that 600,000 US businesses have permanently closed each year. But a Fed study released on Thursday found that the pandemic has resulted in an additional 200,000 permanent closures of businesses over prepandemic levels – or about a quarter to a third above normal.

Individual companies account for about two-thirds of the closures, while personal service providers, like hair and nail salons, were the hardest hit, accounting for 100,000 permanent closures between March 2020 and February 2021.

“Business exit implies permanent job destruction, potentially detaching workers from the labor market and limiting the speed of the employment recovery,” the study said.

The study also said that small businesses had lower exit rates than expected from early on in the pandemic, and while the Fed economists did not provide a reason for this in the study, many small businesses have managed to stay afloat with the help of government aid.

The expectations early in the pandemic were dire for small business. For instance, the National Federation of Independent Business found in a July survey that 23% of small businesses expected to be closed within six months unless economic conditions changed.

Government aid may have accounted for some of this upside surprise. Insider reported on March 16 that most small businesses continued to pay their bills during the pandemic through the Paycheck Protection Program, which gives loans to small businesses.

On top of stimulus aid, Biden’s infrastructure plan could also help mitigate the toll the pandemic has had on US businesses. The president proposed a $400 billion investment to strengthen and protect America’s businesses, which would encourage and promote domestic production of goods.

But the aid can only last so long, and The Wall Street Journal reported that businesses that have not yet permanently closed could soon collapse under the burdens of back rent and unpaid loans.

Insider also reported on Friday that the situation remains challenging for businesses that are open – they’re struggling to hire because of a labor shortage caused by a number of things, including unemployment benefits disincentivizing people to work and fear of contracting COVID-19.

Read the original article on Business Insider

White-owned small businesses are twice as likely to get financing as Black- and Latino-owned firms, Fed survey finds

black owned business sign
  • A Fed survey found white-owned small businesses were twice as likely to get non-emergency financing as Black-owned ones.
  • It also found that 46% of Black-owned firms that applied for financing didn’t get anything.
  • Black-owned businesses also experienced delays in receiving Paycheck Protection Program loans.
  • See more stories on Insider’s business page.

Small businesses have been hit hard financially by COVID-19, and government aid from President Joe Biden’s $1.9 trillion stimulus package, along with regular, non-emergency financing from banks, has helped those businesses stay afloat.

But access to funding – or lack thereof – still often breaks down along racial lines, according to a new survey conducted by 12 Federal Reserve Banks.

The survey, conducted in September and October 2020, yielded 9,693 responses from a small businesses with between one to 499 employees, and another 4,531 responses from non-employer firms, with responses corresponding to the prior 12 months. It found that aid from banks, along with Paycheck Protection Program (PPP) funding, has disproportionately gone to white-owned businesses, and firms owned by people of color have in many cases gone without the help they need.

According to the credit survey released on Thursday, white-owned small businesses were twice as likely to be fully approved for financing as Black- and Latino-owned businesses last year. Among Latino-owned firms with low-credit risk, 25% received requested non-emergency financing, while 48% of white-owned firms received all requested financing. The survey also found that Black- and Latino-owned business with low credit risk were approved for full financing at nearly the same rate as white-owned businesses with medium to high credit risk.

Here are the other key findings of the survey:

  • Businesses owned by people of color were more likely than white-owned businesses to report reduced operations or temporary closure during the pandemic;
  • 13% of Black-owned firms received all the financing they sought during the pandemic, compared to the 40% of white-owned firms;
  • 46% of Black-owned firms that applied for financing received nothing;
  • And among non-employer firms, those with white owners were twice as likely as those with Black owners to receive all the PPP funding they sought.

Insider reported on March 16 that the PPP has factored into small businesses maintaining strong credit standings due to aid provided since the start of the pandemic, but experts said the government needs to provide more targeted aid beyond the pandemic to ensure equitable distribution.

“Let’s find those businesses that really need the help,” Brett Theodos, a senior fellow at the Urban Institute, told Insider last month. “Let’s support entrepreneurial ecosystems where they’re not well developed, let’s help de-risk loans that really are high risk, let’s overcome the race equity gap that exists and business ownership in this country, and let’s be more intentional around our targeting.”

On March 30, Biden signed the PPP extension into law, which allows small businesses to receive aid from the program through May 31, and he also included $50 billion in small business aid in his $1.9 trillion stimulus package.

But since the program was established under the CARES Act in March, it has run into a host of problems that prohibited eligible businesses from receiving aid. For example, although loans within the program are intended for businesses with 500 or fewer employees, some large companies got them, such as fast-food chain Shake Shack getting $10 million, which it later returned.

And Brookings data from last year found that businesses in communities of color were least likely to have existing relationships with large banks, causing an average 31-day delay for small businesses in majority-Black zip codes to receive their PPP loans.

Read the original article on Business Insider

Inflation is coming back. Consumer prices climbed more than expected in March, data shows.

Walmart coronavirus shopping
Shoppers are seen wearing masks while shopping at a Walmart store, in North Brunswick, New Jersey, on July 20, 2020.

  • A popular gauge of US inflation rose faster than expected in March as the economy reopened.
  • Consumer prices rose 2.6% year-over-year, partially lifted by March 2020’s drop in price growth.
  • The Fed has signaled that reopening will drive a strong but transitory surge in inflation.
  • See more stories on Insider’s business page.

Prices of common consumer goods rose faster than expected last month as widespread reopening accelerated the economic recovery.

The Consumer Price Index, a popular measure of overall inflation, gained 0.6% from February to March, according to data published by the Bureau of Labor Statistics. Economists surveyed by Bloomberg had expected an increase of 0.5%. The reading follows a 0.4% gain in February. A 9.1% surge in gasoline prices drove the bulk of the uptick.

Core inflation – which excludes volatile energy and food prices – increased 0.3%. That also exceeded the median estimate of a 0.2% month-over-month jump.

Consumer prices jumped 2.6% year-over-year, marking the largest increase since the pandemic began. The reading also exceeded the economist forecast of a 2.5% climb. The measure is somewhat skewed, however, by data from March 2020, when prices declined when the pandemic first froze economic activity. That drop artificially lifts the year-over-year figure by giving the latest measure a lower bar to clear.

“We expect year-over-year inflation to remain steady as the upward pressure of a fast-reopening economy and fiscal stimulus is counteracted by somewhat tougher year-over-year comps,” David Kelly, chief global strategist at JPMorgan Asset Management, said.

Still, the increases suggest inflation will strengthen through the economic recovery, as expected. Price growth trended below the Federal Reserve’s 2% target for decades, signaling consistently weak demand. Now, with businesses reopening, consumers deploying stimulus-boosted savings, and hiring picking up, economists expect inflation to come in above 2% for some time.

The Fed anticipated such a bounce and has dampened concerns that inflation will run rampant. The central bank adjusted its inflation target in August to pursue above-2% inflation for a period of time to counter years of below-target price growth.

Fed Chair Jerome Powell has said that, while reopening will drive stronger inflation, the effect will likely be “transitory” and quickly fade as the economy enters a new normal.

“It is more likely that what happens in the next year or so is going to amount to prices moving up, but not staying up. And certainly not staying up to the point where they would move inflation expectations above 2%,” Powell said in early March, adding the central bank will “be patient” in waiting to pull back on its ultra-accommodative policy.

Americans, however, aren’t yet buying Powell’s message. The median expectation for one-year inflation rose to 3.2% last month, its highest point since 2014. The estimate for three-year inflation edged higher to 3.1% from 3%. Though the Fed hasn’t clarified how high it’s willing to let inflation run, 3% price growth would be the strongest since the early 1990s.

While it’s true that inflation expectations have steadily landed above actual inflation for decades, expectations alone can drive inflation higher. Businesses tend to lift prices and workers usually demand higher wages when the country expects stronger inflation over the next year.

Read the original article on Business Insider

Fed Chair Jerome Powell says the greatest risk to the US economic rebound is another wave of the coronavirus

FILE PHOTO: U.S. Federal Reserve Chairman Jerome Powell speaks to reporters after the Federal Reserve cut interest rates in an emergency move designed to shield the world's largest economy from the impact of the coronavirus,  in Washington, U.S., March 3, 2020. REUTERS/Kevin Lamarque
U.S. Federal Reserve Chairman Jerome Powell  speaks in Washington

  • The US economy is about to start growing “much more quickly,” Federal Reserve Chairman Jerome Powell told CBS.
  • The biggest risk to the economic recovery is another surge in coronavirus cases, Powell said.
  • He credited steady vaccinations, stimulus, and strong monetary policy for the rebounding economy.
  • See more stories on Insider’s business page.

Federal Reserve Chairman Jerome Powell says the US economy is about to start growing “much more quickly,” but a resurgence in COVID-19 cases could derail that progress.

Powell discussed the US economic recovery from the coronavirus pandemic with CBS’ Scott Pelley, in an interview set to be aired on 60 Minutes Sunday at 7 pm ET.

In a preview of the interview, Powell said the US economy is at an “inflection point” more than a year after the virus forced widespread lockdowns, tangling supply chains, shuttering businesses, and leaving millions of Americans unemployed.

Powell said the economy is picking up steam “because of widespread vaccination and strong fiscal support, strong monetary policy support.”

“We feel like we’re at a place where the economy’s about to start growing much more quickly and job creation coming in much more quickly. The principal risk to our economy right now really is that the disease would spread again. It’s going to be smart if people can continue to socially distance and wear masks,” Powell told CBS.

The March jobs report showed positive signs, adding 916,000 nonfarm payrolls, well-exceeding economists’ expectations. The unemployment rate fell to 6% from 6.2%, matching forecasts, still far above the 3.5% pre-pandemic rate.

While businesses reopen and hiring appears to be surging, many employers have said they are struggling to fill vacant jobs, especially in the restaurant and retail sectors, which took a huge hit last year.

Powell earlier this month said some people may struggle to reacclimate to an economy permanently changed by the pandemic, adding the Fed will continue to provide support to prevent scarring and persistent unemployment.

“The real concern is that longer-term unemployment can allow people’s skills to atrophy, their connections to the labor market to dwindle, and they have a hard time getting back to work,” he said in the conference. “It’s important to remember we are not going back to the same economy, this will be a different economy,” Powell said in a virtual conference hosted by the International Monetary Fund.

Powell and experts have also cautioned that another wave of the coronavirus could unwind economic progress.

Even as vaccinations continue to roll out in the US at a steady pace, confirmed cases of COVID-19 in the US have again been on the rise. The director of the Centers for Disease Control and Prevention last month warned of “impending doom” and a possible fourth surge of the virus, spurred by variants.

On Saturday, an Israeli study found coronavirus variants first found in South Africa and the UK are able to partially “breakthrough” the Pfizer/BioNTech vaccine. The study has not yet been peer-reviewed.

Read the original article on Business Insider

Biden breaks with Trump and says he’ll stick up for Federal Reserve’s independence

Trump Biden
  • Biden said he wanted to break with Trump in sticking up for the Federal Reserve’s independence.
  • “I want to be real clear that I’m not going to do the kinds of things that have been done in the last administration,” Biden said.
  • While he was in office, Trump pressured Fed Chair Powell against raising interest rates.
  • See more stories on Insider’s business page.

President Joe Biden said on Tuesday he would safeguard the independence of the Federal Reserve, breaking with his predecessor, Donald Trump, who often tried pressuring the central bank to lower the cost of borrowing.

“Starting off my presidency, I want to be real clear that I’m not going to do the kinds of things that have been done in the last administration – either talking to the attorney general about who he’s going to prosecute or not prosecute … or for the Fed, telling them what they should and shouldn’t do,” he said at a White House news conference.

“I think the Federal Reserve is an independent operation,” he said, adding he does speak with Treasury Secretary Janet Yellen. The Treasury did not immediately respond to a request for comment.

The remarks reflect another way that the president is distancing himself from his predecessor by preserving the Fed’s traditional independence from the White House. Trump heaped criticism onto Powell throughout his term, assailing him as “an enemy of the state” and a “terrible communicator” from his now-suspended Twitter account.

Trump furiously tried pressuring Powell from raising interest rates while the economy was in the middle of its longest expansion in history in the years leading up to the pandemic. At one point, he suggested Powell may be a “bigger enemy” of the US than China.

Powell played a critical role designing the Fed’s stimulus programs as vast swaths of the economy shut down last year. He also encouraged Congress to continue approving more federal aid for struggling individuals, small businesses, and state and local governments.

“Given the low level of interest rates, there’s no issue about the United States being able to service its debt at this time or in the foreseeable future,” he told NPR recently. Powell, a Trump nominee, has also downplayed the inflation risks stemming from the $1.9 trillion stimulus package.

Powell’s term as Fed chair expires in 2022, and Biden must decide whether to keep him onboard.

Read the original article on Business Insider

Americans have saved $1.6 trillion since the pandemic started and it poses little inflation risk, the Fed says

Capital One ATM
A man uses the ATM at a Capital One bank in Midtown Manhattan on July 30, 2019 in New York City.

  • Americans’ savings rose by $1.6 trillion during the pandemic thanks to stimulus and weak spending.
  • Some experts fear households will quickly spend their savings and fuel runaway inflation.
  • Studies suggest most will hold onto the cash even after the US reopens, Fed researchers said.
  • See more stories on Insider’s business page.

Gradual reopening and widespread vaccination have economists wondering how Americans will spend in a post-pandemic economy. Researchers at the Federal Reserve Bank of New York see little cause for concern.

Americans enjoyed a savings surge during the pandemic as government stimulus hit households and lockdown measures cut down on spending. Estimates suggest people held on to roughly $1.6 trillion in savings since last March, when the health crisis first slammed the economy.

The sum highlights the scale of the government’s support throughout the coronavirus recession. Yet some experts fear that, if too much of these savings are spent too quickly, the recovery will be disrupted as rampant inflation takes hold.

Such a demand bounce is unlikely, professors and economists at the New York Fed said in a Monday blog post. For one, Americans who kept their jobs still haven’t spent nearly as much as they would in a pre-pandemic economy.

“Increased purchases of furniture, electronics, and other goods have compensated only in part for this reduced spending on services,” the economists said. “As a result, overall consumption has fallen for many households, even if their income is more or less intact.”

The roughly $5 trillion in stimulus passed by President Donald Trump and President Joe Biden over the last year also contributed to the savings boom. Relief doled out in direct payments and expanded unemployment benefits was used to pay down debts and cover living costs, but some was tucked away as savings.

It’s also possible that some households increased their saving habits as a precautionary measure due to uncertainty around how the economy would fare, the researchers said.

NYFed
Source: Federal Reserve Bank of New York.

The very nature of excess savings suggests they won’t be unwound too quickly. Stimulus recipients spent roughly one-third of the government support, according to Fed estimates. The rest was mostly saved, likely by households that already enjoy a financial buffer. It’s possible that circumstances change and force Americans to tap their savings sooner than expected, but the economy’s steady recovery should lead habitual savers to keep holding on to their funds, the team said.

Even when the economy fully reopens and Americans have more ways to deploy their cash, the researchers don’t expect a sudden rise in spending. Many are sure to dine out more often or take a vacation that wouldn’t have been taken otherwise, but there’s a limit to how much a household can boost its discretionary spending, the team said.

“It is certainly possible that some of these savings will pay for extra travel and entertainment once the COVID-19 nightmare is behind us, but our conclusion is that the resulting boost to expenditures will be limited,” the economists said.

This conclusion – and likely outcome – is a key reason why, as Insider’s Hillary Hoffower reported, a full economic recovery depends on the wealthiest Americans spending much more than they did over the last 12 months of the pandemic.

Read the original article on Business Insider

Biden’s infrastructure plan should supercharge growth over the long term, Dallas Fed president says

Robert Kaplan
Dallas Federal Reserve Bank President Robert Kaplan.

  • Biden’s infrastructure plan can fuel a permanent boost to growth, the Dallas Fed’s president said.
  • Where stimulus will fuel a sudden rise, infrastructure is a “long-term investment,” Robert Kaplan said.
  • Inflation will still likely trend within the Fed’s comfort zone amid the new spending, he added.
  • See more stories on Insider’s business page.

President Joe Biden’s infrastructure proposal can permanently lift the country’s economic output and drive stronger growth for years after the recovery, Robert Kaplan, president of the Federal Reserve Bank of Dallas, said.

The president rolled out the American Jobs Plan in a Wednesday speech, marketing the measure as a critical next step for his plan to revive the US economy. The $2.3 trillion spending package includes investments in traditional infrastructure like roads and bridges, nationwide broadband, clean water, and affordable housing.

The plan’s unveiling comes just weeks after Biden approved a $1.9 trillion stimulus plan. The March bill was necessary to breathe life back into the economy, but the “bump in GDP” expected from the stimulus will wear off over time, Kaplan said in a Bloomberg TV interview.

In contrast, the president’s new spending plan would provide a longer-lasting boost to economic growth as the country emerges from the pandemic, he added.

“The nice thing and the desirable thing, for me, about infrastructure spending: it’s that it’s a long-term investment,” the central bank president said. “It should help, in the future, create higher potential GDP growth, higher sustainable growth, better productivity.”

The American Jobs Plan is only the first half of the White House’s new spending push. Biden said Wednesday he aims to reveal the American Families Plan – a spending proposal with funds for public education and care facilities – in the coming weeks. Combined, the two packages will reportedly cost up to $4 trillion.

The additional spending measures come as economists debate whether Biden’s stimulus risks fueling rampant inflation. Where progressive economists see the plan as necessary, others fear the plan will overfill the hole in the economy.

The Fed has signaled it will allow inflation to rise above 2% as the economy recovers in hopes of reaching maximum employment. The stimulus could drive a sharp rise in inflation, but the impact will likely be temporary as the growth rate similarly slows, Kaplan said.

“I think you’ll see inflation moderate as we get into 2021 and into 2022 and 2023. But I also think it’s wise as a central banker to have a good dose of humility and an openness to learning as this all unfolds,” he added.

Kaplan isn’t a voting member of the Federal Open Market Committee and is set to become one in 2023.

The outlook is similar to that held by Fed Chair Jerome Powell. The central bank chief said the Fed aims to maintain its ultra-easy monetary policy stance well into the future due to lasting uncertainty around the coronavirus recession. Any stimulus-fueled jump in inflation is likely to be transitory, he added in a press conference.

Read the original article on Business Insider

The US is recovering faster than expected but economic rebound is far from complete, Fed’s Powell says

Jerome Powell waits to testify before the Senate Banking, Housing and Urban Affairs Committee on his nomination to become chairman of the U.S. Federal Reserve in Washington, U.S., November 28, 2017.   REUTERS/Joshua Roberts
Federal Reserve Chair Jerome Powell.

  • The US economic recovery has progressed faster than expected, Fed Chair Jerome Powell said.
  • Still, a full recovery is far off and the Fed will keep support in place, he testified to Congress.
  • Today’s unemployment rate of 6.2% “underestimates the shortfall” in the labor market, Powell added.
  • See more stories on Insider’s business page.

Despite lower COVID-19 case counts, encouraging economic data, and an improved rate of vaccination, the US economy has plenty of work to do to fully recover, Federal Reserve Chair Jerome Powell said.

The US is nearing the end of the tunnel. Widespread vaccination suggests the country could have a grasp on the coronavirus’ spread by the summer – or sooner. Key indicators including nonfarm payrolls and manufacturing gauges also show sectors nearing or trending above their pre-pandemic levels. Democrats’ $1.9 trillion relief package stands to further accelerate growth coming out of lockdowns.

Still, government and Fed support are necessary to get the US back on track, Powell said.

“The recovery has progressed more quickly than generally expected and looks to be strengthening,” the central bank chief said in remarks prepared for testimony to the House Financial Services Committee on Tuesday. “But the recovery is far from complete, so, at the Fed, we will continue to provide the economy the support that it needs for as long as it takes.”

Powell reiterated that the path of the recovery hinges on the trajectory of the virus, a message uttered by Fed officials since the pandemic made landfall in the US last year. For now, that trajectory looks promising. The country reported 55,621 new cases on Monday, according to The New York Times, down 8% from two weeks ago. Hospitalizations are down 16% from two weeks ago.

The steady decline in cases has lifted household spending on goods, but the services industry is still mired in a downturn. Sectors hit hardest by the virus “remain weak,” and the current unemployment rate of 6.2% “underestimates the shortfall,” Powell said.

The central bank announced last week it would keep interest rates near zero and maintain its pace of asset purchases. It also published a new set of quarterly economic projections that reflected a considerably more optimistic outlook than the December set.

Fed policymakers now expect the unemployment rate to fall to 4.5% by the end of 2021 instead of the prior estimate of 5%, and see full-year economic growth of 6.5% this year, up from the previous forecast of a 4.2% expansion.

The new estimates reflect the strong economic gains made since December, but the Fed still has its eye on those left behind, Powell said.

“We welcome this progress, but will not lose sight of the millions of Americans who are still hurting, including lower-wage workers in the services sector, African Americans, Hispanics, and other minority groups that have been especially hard hit,” he added.

Powell is scheduled to testify alongside Treasury Secretary Janet Yellen at 12 p.m. ET on Tuesday. The two are then slated to appear before the Senate Banking Committee on Wednesday.

Read the original article on Business Insider

One chart shows how the top 1% of Americans have grown their wealth in the last 20 years

unemployment insurance poverty job loss economic recession america coronavirus pandemic
New Yorkers in need wait in a long line to receive free produce, dry goods, and meat at Lincoln Center on July 29, 2020.

  • The top 1% of Americans increased their wealth by $4 trillion from the end of 2019 to the end of 2020.
  • That group of households together held wealth of $38.61 trillion at the end of last year.
  • In contrast, the bottom 50% held $2.49 trillion, or 2.0% of household wealth.
  • See more stories on Insider’s business page.

From the end of 2019 to 2020, the top 1% of Americans added just about $4 trillion to their wealth.

According to data from the Federal Reserve, the top 1% of Americans held about $34.58 trillion in the fourth quarter of 2019. By the fourth quarter of 2020, they had $38.61 trillion.

They gained just about that much in 2019 too; the top 1% had $30.35 trillion in the fourth quarter of 2018, and had $34.58 trillion by the end of 2019.

Meanwhile, the bottom 50% of Americans don’t even hold as much wealth in total as the top 1% gained in 2020. At the end of 2020, the bottom 50% had $2.49 trillion in total household wealth.

The bottom half increased their wealth by $0.47 trillion from the fourth quarter of 2019 to the fourth quarter of 2020. While that’s a far cry from the gains the top 1% saw, it’s still almost a 25% increase from the fourth quarter of 2019 to the fourth quarter of 2020.

The Federal Reserve provides data on household wealth for different groups, including broken down by wealth percentile. The following chart highlights household wealth by wealth percentile over the past two decades:

Even before 2020, household wealth did not increase much for the bottom 50%. The bottom 50% held 3.4% of wealth in the first quarter of 2000, higher than the 2.0% they held at the end of 2020.

Inequality has worsened during the pandemic

Broadly, the pandemic has seen a K-shaped recovery, where higher-income Americans see their wages and jobs grow, and lower-income Americans experience the opposite. But income inequality isn’t a new pandemic problem – as the chart shows, vast disparities existed prior to March 2020.

But low-wage and non-white workers have been continually hit the hardest throughout the pandemic. And post-pandemic prospects for low-wage workers are also murky: most of them may have to change careers, and pick up new skills to stay afloat.

Read the original article on Business Insider

Bitcoin won’t replace the dollar because it’s too volatile, Fed’s Powell says

GettyImages 1165380762
  • Cryptocurrencies like bitcoin are too volatile to replace the dollar, Fed Chair Jerome Powell said Monday.
  • Bitcoin has surged in price as companies including Tesla and Square invest in the token.
  • The Fed is still exploring use cases for a digital currency issued by the central bank, Powell said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Federal Reserve Chair Jerome Powell said Monday that, while the central bank is still exploring the potential for a central bank digital currency, cryptocurrencies like bitcoin can’t serve as an effective replacement to the US dollar.

Bitcoin has enjoyed new fame over the past year as large companies’ adoption of cryptocurrencies has sent prices surging. Companies including Tesla, MicroStrategy, and Square have all invested in the token. Meanwhile, players in the financial sector are warming to cryptocurrencies’ use as an alternative asset.

The positive developments helped bitcoin surge as high as $61,742 earlier this month as more investors looked to profit on the token’s growing popularity.

Powell has his doubts about cryptocurrencies and their supposed use cases. The tokens might be a substitute for gold, but their wild price swings make them unfit to replace the dollar, the central bank chief said during a teleconference hosted by the Bank of International Settlements.

“Crypto assets are highly volatile – see bitcoin – and therefore not really useful as a store of value,” Powell said, according to MarketWatch. “They’re not backed by anything. They’re more of an asset for speculation.”

Bitcoin fell slightly through the day following Powell’s remarks. The cryptocurrency traded just above $57,000 as of 2:30 p.m. ET, up roughly 98% year-to-date.

While cryptocurrencies aren’t likely to gain the Fed’s favor, the central bank has considered creating a digital currency of its own. The Fed partnered with MIT researchers in August to build and test a central bank digital currency. Officials sought to gain a better understanding of digital currencies and their potential implementation through the tests, Fed Governor Lael Brainard said at the time. Still, the token included in the study was merely “hypothetical,” she added.

Powell reiterated that, though the bank is still studying the potential for a digital dollar, serious vetting is necessary before such a currency is implemented.

“To move forward on this, we would need buy-in from Congress, from the administration, from broad elements of the public, and we haven’t really begun the job of that public engagement,” the Fed chair said. “Because we’re the world’s principal reserve currency, we don’t need to rush this project. We don’t [need] to be first to market.”

Somewhere between a central bank digital currency and cryptocurrencies exist stable coins. These tokens counter the volatility seen with cryptocurrencies by tying their value to more stable assets like government-issued currencies.

Stable coins are “an improvement” over cryptocurrencies and “may have a role to play” in digitizing the dollar, but they’re unlikely to form the foundation for a global payment system, Powell said. Any candidate for a global currency controlled by a private company deserves “the highest level of regulatory expectations,” he added.

Read the original article on Business Insider