Reserve

2024

Jerome Powell

Bitcoin

<p><strong>The postponement of rate cuts is pushed back due to the return of inflation across the pond. What impact will this have on Bitcoin?</strong></p>
<h2 id="the-fed-acknowledges-the-resurgence-of-inflation">The Fed acknowledges the resurgence of inflation</h2>
<p>Bad news, the Fed’s statement acknowledges for the first time that inflation is resurfacing.</p>
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<p><em>“There has not been further progress towards the inflation goal of 2% in recent months,”</em> one can read in the <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20240501a.htm" target="_blank" rel="noopener noreferrer nofollow">statement</a>.</p>
<p>The governors reiterated the verbiage aimed at defusing growing expectations of a rate cut:</p>
<p><em>“The Fed will carefully evaluate new economic data, the evolving outlook, and the balance of risks before considering changing its key interest rate.”</em></p>
<p>Taking a 180-degree turn, journalists are now wondering whether inflation might instead prompt the Fed to raise its key interest rate, which has been at <a href="https://www.newyorkfed.org/markets/reference-rates/effr" target="_blank" rel="noopener noreferrer nofollow">5.50%</a> for nearly a year.</p>
<p>The possibility of a “rate hike” was mentioned eight times, but Jerome Powell did not appear enthusiastic about the idea. The Fed Chairman believes it is <em>“unlikely that the next change in the key interest rate will be an increase.”</em></p>
<p><em>“But from what we are observing, it is indeed quite clear that our restrictive monetary policy needs more time to take effect,”</em> he added.</p>
<p><em>“We do not like responding to data covering one or two months. But this is a full quarter [of inflation increase]. We take note. It will probably take us more time to be sure that we are on a trajectory tending solidly toward 2% inflation.”</em></p>
<p>In short, the prospect of a rate cut in 2024 is receding.</p>
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<p>It will all depend on the price of a barrel of oil, and thus on the evolution of geopolitical tensions, particularly in the Middle East…</p>
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     <p lang="en" dir="ltr">This was the most important 60 seconds yesterday.<br><br>Powell's long pause &amp; body language tells you everything you need to know. Something is coming &amp; he knows it. <a href="https://t.co/giTI7czJo8" rel="noopener noreferrer nofollow">https://t.co/giTI7czJo8</a> <a href="https://t.co/5JIVUmmCLp" rel="noopener noreferrer nofollow">pic.twitter.com/5JIVUmmCLp</a></p>— Financelot (@FinanceLancelot) <a href="https://twitter.com/FinanceLancelot/status/1785951729470607642?ref_src=twsrc%5Etfw" rel="noopener noreferrer nofollow">May 2, 2024</a>
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<h2 id="h-inflation-qe-and-bitcoin">Inflation, QE, and Bitcoin</h2>
<p>If the reduction of key interest rates is postponed, the Fed has nevertheless announced that it will reduce its balance sheet at a slower pace.</p>
<p>As a reminder, the US Federal Reserve holds $5.7 trillion in Treasury bonds. These were acquired through the well-known QE (Quantitative Easing). This is in addition to $2.4 trillion in mortgage-backed securities (MBS).</p>
<p>Over $1.5 trillion in Treasury bonds have been sold since the start of QT (Quantitative Tightening). And about $300 billion in MBS.</p>
<p>Yesterday, the Fed declared that the reduction of its balance sheet will slow as of June:</p>
<p>– Treasury bond sales will decrease from $60 billion to $25 billion per month.<br>– Sales of MBS-backed securities will remain unchanged at $35 billion per month.</p>
<p>By the way, the Fed returns the interest collected on these Treasury bonds to the US government. The fact that the Fed is offloading its Treasury bonds means the US government ends up paying more interest, which translates to more borrowing.</p>
<p>Overall, the Fed’s statements are not likely to drive markets upwards.</p>
<p>What impact on Bitcoin? It should logically be bullish. If inflation remains persistent year after year, Bitcoin with its absolutely finite money supply can only gain popularity among the masses.</p>
<p>Bitcoin will be the big winner as the world realizes that inflation will no longer return to a cruising pace of 2%.</p>
<p>Our inability to generate cheap energy in order to gain productivity bodes ill… Hodl!</p>

Bitcoin – The Fed postpones rate cut

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