What’s the market saying about the Trump win?

With respect to today’s FOMC meeting, Powell needs to carefully consider where he wants to attempt guiding yields

share


This is a segment from the Forward Guidance newsletter. To read full editions, subscribe.


After Trump’s election win was confirmed (and with a likely sweep of Congress), markets began to digest the news. 

In bond markets, the major factor was a Congress sweep that will allow unrestrained legislation from the Republican party. This — paired with concerns around a re-accelerating economy and potential inflationary policies, such as Trump’s tariffs — sent long bond yields soaring globally, but especially domestically:

At the same time, the DXY soared as global investors anticipated higher nominal growth and a roaring economy in the US. That said, half the move has reversed today alongside a calming down of long bond yields. 

So what does this all mean? And what were the implications for the Fed as it entered its FOMC meeting today?

As Jim Bianco shows in the chart below, this reverse in yields on the long end since the Fed’s first rate cut is historic:

Regardless of what the Fed does to the short rate (i.e the fed funds rate), the vast majority of the economy borrows and lends on the long end of the yield curve, such as mortgages.

Therefore, regardless of what happens to the short rate, the surge in long bond yields has been tightening financial conditions. 

With respect to today’s FOMC meeting, Powell needs to carefully consider where he wants to attempt to guide yields. There are currently two evolving approaches:

Andy Constan of Damped Spring Advisors believes that for yields to come down and counter-intuitively ease financial conditions, the Fed needed to be more hawkish today and potentially pause its cuts. In his view, more rate cuts could actually tighten conditions as bond vigilantes show up and send bond yields higher — doing the tightening the Fed refuses to do. 

On the other side is Tom Lee, who believes the Fed needs to be even more dovish. This is because a large portion of what comprises the price of long bond yields is expectations on short rates for the maturity of the bond. 

With the FOMC’s 25bps cut today and no signal yet of an end to QT, it’s looking likely the Fed will continue to wait and observe how its current rate-cutting path transpires and is digested by markets.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

Research Report Templates (1).jpg

Research

With $13B in tokenized assets, strong institutional partnerships, and a clear first-mover advantage in the RWA space. The platform's methodical approach to regulatory compliance, coupled with its hybrid public-private architecture, positions it uniquely to capture significant market share in the emerging tokenization landscape. While current fee generation primarily stems from metadata transactions, the planned launch of Figure Markets, major exchange listings, and comprehensive market-making initiatives in 2025 could serve as powerful catalysts for growth.

article-image

Perena is built on the premise that as stablecoins proliferate, liquidity could fragment, and stablecoins aren’t useful if they aren’t liquid

article-image

From hackathons to trading tools and DAO governance, AI agents are redefining how we build and innovate

article-image

CME’s large bitcoin contracts are so big that investors are turning to micro bitcoin contracts

article-image

The third-largest stablecoin is going multichain for the first time in its seven-year history

article-image

Nano Labs’ news release notes confidence in bitcoin being “a reliable store of value amidst its rising global adoption”

article-image

Several big companies report third quarter earnings this week, likely moving markets