The Fed Is Petrified, Protect the American Right to Bitcoin
The Fed is frozen in its own tracks. We owe it to ourselves to protect bitcoin, users, and builders from the new Digital Asset Anti-Money Laundering Act.
Dear readers,
It took about 24 hours for me to finally realize what happened at yesterday’s FOMC meeting. Oh shit, I thought, they’re petrified.
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Rates markets are coming for Powell & Co.
We can process what occurs each time the FOMC concludes its monetary policy meeting by comparing the issued statement, word for word, to last meeting’s statement. In this way, we observe the changes made to the Fed’s outlook on policy and the economy. On Wednesday, the Fed statement was essentially unchanged. One sentence, on the Russian war’s potential impact on inflation, had a slight phrasing alteration. Upon reflection, no change whatsoever was telling.
The Fed is a slow-moving institution (when not faced with financial crisis). It is a Titanic-sized ship that turns with difficulty. This is one explanation for why the Fed, by March of this year, had only hiked rates by 0.25%, and only delivered to the market a mildly hawkish tone.
A similar situation is unfolding right now, as the Fed is still hiking the policy rate while market rates are all falling. With the US Treasury 2-year yield finally falling below Fed Funds after the latest hike, the market no longer believes that overnight rates will average any higher yield than the Fed’s guaranteed repo facility offers today. Current 2s no longer predict higher policy rates, especially lasting ones.
It’s important to remember that all year, however, they have. Every time the Fed has raised interest rates, 2s have always increased in yield by an according amount, sometimes even increasing in spread to Fed Funds as the market expected 75 basis point jumps to become the norm. And for much of the year, they did. And 2s always was there to reflect it.