What’s next for Yields & Crypto?
FED and other central bankers are done hiking. Liquidity is about to be unleashed again.
Daddy FED has a mischievous sense of humor. One day, the sun shines brightly, and you’re tempted to break out the sunglasses and invest in beachfront property. The next, a thunderstorm of financial jargon rolls in, leaving you drenched in confusion and clinging to your economic umbrella.
In this whimsical macroeconomic circus, the Federal Reserve serves as our ringmaster, donning its finest economic top hat, and occasionally pulling a rabbit—or in this case, a change in interest rates—out of its monetary policy hat. Some thoughts on how this ringmaster is thinking and what does that mean for my dear crypto clowns and animals.
The recent announcement that the Fed is done hiking rates has stirred the financial waters. It’s essential to grasp that the 2% target, while a guideline, isn’t an unyielding commandment carved in stone. The Fed’s stance, it seems, is predicated on two pillars: employment levels and public sentiment. As long as jobs are abundant and the general populace remains relatively content, the Fed’s outlook remains favorable. They can live with 3-4% CPI numbers. Hence the pause and it seems that pause is here to stay
We, the observers, of this tightrope acrobat, might not fully comprehend the significance of this pause in real-time. However, looking back in a year, we may view it as a pivotal shift in the Federal Reserve’s trajectory. Mark my words here we live each moment with shortest of spans beefed up by our TilTok fed brains. Think outside, think longer, think what others are still comprehending from their past.
However, in the present economic landscape, the rates remain relatively high, with no noticeable pivot just yet. Concurrently, yields are ascending at an unprecedented pace. This escalation is the harbinger of deteriorating financial conditions, impacting various facets of our economic lives, from household savings and credit card bills to student loans and the commercial real estate sector. It appears as though everything is teetering, but there’s a safety net in place – the Federal Reserve stands firmly behind the banking sector, ready to provide support if needed.
It’s like a high-stakes game of financial Jenga, where every move and tremor matter. Just as we’ve seen in the past, one or two banks might find themselves in a precarious position, threatening to topple the tower. This precarious scenario could incite a mini-crash, reminiscent of March 23 SVB style crisis. In response, the Federal Reserve is poised to unveil a new liquidity injection strategy, adorned with a fancy name – a pivot towards unleashing more liquidity, which is more commonly known to you degens as Quantitative Easing (QE).
To further complicate matters, the financial landscape is also being shaped by external factors. With considerable financial resources allocated to war efforts on two fronts, and potentially more, and an approaching election year, a substantial liquidity regime is on the horizon. It’s akin to the return of a financial era reminiscent of the Covid pandemic period, where substantial government intervention is expected. If history rhymes, then the forward trajectory should look something like below infographic from 2007/8 event unfolding
In this context, the message is clear: whether it’s Bitcoin or the stock market, you are just not long enough IMO. Liquidity is coming back to pump your bags. Start loading those bags with assets you love. There would be moments of weakness but all in all, I see no other way out for FED. Liquidity unleashed
Thank you for reading and sharing. I remain bullish Bitcoin.
Follow us on:
Twitter | Linkedin | Telegram | Spotify | Apple Podcasts