Casey Wagner

<div id="highlights-block_624de6f47b4f6" class="highlights">
 <ul>
 <li>Fed officials plan on pulling back economic support at a faster rate than expected</li>
 <li>Cryptocurrencies fell on the news while stocks traded sideways</li>
 </ul>
 
</div>



Federal Reserve officials are planning on reducing the central bank’s trillions of dollars in bond holdings by around $95 billion a month, minutes from the March meeting show.&nbsp;



Central bankers also plan to allow some of their government-backed holdings to expire, helping to pare down the Fed’s balance sheet, which currently stands at $9 trillion. A limit of $60 billion in Treasurys and $35 billion in mortgage-backed securities would be allowed to roll off, officials “generally agreed,” the <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20220316.pdf">minutes</a> note.



The Fed voted to raise rates a quarter of a percentage point in <a href="https://cms.blockworks.co/fed-raises-interest-rates-a-quarter-percentage-point/" target="_blank" rel="noreferrer noopener">March</a> and officials noted that an increase in the pace of interest rate hikes may come in the near future. 



St. Louis&nbsp; ​​Fed President James Bullard was the only official to vote against the action, “preferring to raise the target range for the federal funds rate by 0.5 percentage point to ½ to ¾ percent in light of elevated inflation pressures,” according to the minutes.



“The Fed cannot afford, literally and figuratively, to bail out the economy from the forthcoming recession,” David Tawil, president of crypto hedge fund firm ProChain Capital. “Rates must go higher, otherwise we will have a decade of stagflation.”



The minutes come as the central bank begins to tighten monetary policy with inflation rising at the fastest pace in four decades. Russia’s invasion of Ukraine has also presented additional economic challenges, the minutes note. Commodity prices have been pushed higher, “hurting global risk sentiment, and exacerbating supply bottlenecks,” the minutes read.



Cryptocurrencies largely fell on the news, with bitcoin and ether losing about 4% and 7%, respectively. Stocks traded sideways with the S&amp;P 500 losing close to 1% and the Dow Jones down 0.5%. The tech-heavy Nasdaq was trading almost 1% higher.&nbsp;



“We were having a bad day before the announcement, and it got worse,” Tawil said. “Today, crypto is trading like a technology company equity.”



Others are less certain, though, that the Fed’s current policy path will push crypto lower.



“I don&#8217;t think history supports the view that reduction of the Fed&#8217;s balance sheet is necessarily bad for crypto,” said Jack Farley, macro analyst and host of Blockworks&#8217; <a href="https://cms.blockworks.co/podcasts/forwardguidance/" target="_blank" rel="noreferrer noopener">Forward Guidance</a> podcast. “The last (and only) instance of quantitative tightening by the Fed began in October 2017, and bitcoin went up 340% from then until its peak in December 2017.”



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central bank

Bitcoin and Ether Plunge as Fed Moves To Shrink Balance Sheet by $95B a Month

Jack Farley

Is the 40-year era of falling bond yields and low inflation coming to an end? That is the question investors have been asking themselves for months, and now that October&#8217;s CPI reading hit its highest level since 1991, it is a query that can no longer be avoided.



Eric Basmajian of EPB Macro Research is confident that all this anxiety about inflation is unnecessary. On today&#8217;s episode of &#8220;<a href="https://youtu.be/qJWwUFZPhnQ">Forward Guidance</a>&#8220;, Basmajian tells me why he thinks the rate of inflation will soon relent, and why he thinks the bull market in bonds is nowhere close to over. 



Pointing to the fall in economic growth rates as measured by industrial production, hirings, and real rates of consumption and income, Basmajian argues that an overweight allocation to Treasury bonds will protect investors from a slowdown in growth, as can be seen by the rolling over of coincident factors such as industrial production, hirings, and real rates of consumption and income.&nbsp;



Basmajian explores particularly volatile parts of the Consumer Price Index like durable goods and rent, and he explains his long-term view that aging populations will ensure low bond yields in the United States just as they did in Europe and Japan.



Check out what they had to say in the video below. 👇



<figure class="wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" title="Inflation Won&#039;t Last (Here&#039;s Why) | Eric Basmajian" width="1024" height="576" src="https://www.youtube.com/embed/qJWwUFZPhnQ?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
</div></figure>

Forward Guidance

Podcast: Inflation Won’t Last (Here’s Why) | Eric Basmajian

<div id="highlights-block_617811dfb339a" class="highlights">
 <ul>
 <li>“Forward Guidance” explores how stocks, bonds, the dollar, commodities, and crypto are impacted by macro variables such as inflation, growth, and liquidity</li>
 <li>Each episode offers long-form interviews with sophisticated macro thinkers</li>
 </ul>
 
</div>



Today I’m thrilled to announce that I’ll be hosting a new macro interview series called <a href="https://www.youtube.com/watch?v=Jx5ZJc1R95g">Forward Guidance</a> on the Blockworks podcast network.



The show will explore in-depth the risks and opportunities that investors face in today&#8217;s unprecedented macro environment.&nbsp; More specifically, we will explore a paradox at the heart of today&#8217;s markets.



On the one hand, with the help of central banks, risk assets are floating higher by the day, companies are hiring workers at breakneck speeds, and consumer spending and corporate earnings are at record levels.



At the same time, cracks are appearing in the very foundation of our financial markets. A slowdown in commercial lending, wobbles in China’s real estate sector and the surging cost of commodities threaten the narrative the central banks want us so desperately to believe.



That everything is fine.



<a href="https://www.youtube.com/watch?v=Jx5ZJc1R95g" target="_blank" rel="noreferrer noopener">Forward Guidance</a> is a show dedicated to uncovering the heart of this conundrum. Twice a week, I’ll be speaking directly with fund managers, analysts, and financial industry professionals about how investors can grow and protect their wealth in this brave new macro world. These episodes will air on Tuesday and Friday.



The show launches today, Tuesday, October 26th, with Lyn Alden of Lyn Alden Investment Strategy as the first guest. Alden shared her thoughts on why she thinks the global financial system is nearing the apogee of a long-term debt cycle, and the only way to unwind the leverage without causing ruinous economic data is through persistently higher inflation and a significantly weaker US dollar.&nbsp;



Alden also discussed her views on surging energy costs, China’s stock market woes and the flurry of new bitcoin ETFs that have come to market recently.&nbsp;



I will also be hosting a live show with the co-founder of Blockworks, Michael Ippolito. More on that later…



<a href="https://www.youtube.com/watch?v=Jx5ZJc1R95g" target="_blank" rel="noreferrer noopener">Listen</a> to the inaugural episode of <a href="https://www.youtube.com/watch?v=Jx5ZJc1R95g" target="_blank" rel="noreferrer noopener">Forward Guidance</a> on YouTube.



Watch the first episode. 👇



<figure class="wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" title="The Unwinding of the Long Term Debt Cycle | Lyn Alden" width="1024" height="576" src="https://www.youtube.com/embed/Jx5ZJc1R95g?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
</div></figure>

Jack Farley

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