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In this episode of Bitcoin Magazine’s “Fed Watch'' podcast, Christian Keroles and I sat down with Dylan LeClair to talk about all Federal Reserve news, rate hikes, balance sheet normalization (QT), US government austerity, and world news. Dylan is the Head of Market Research for Bitcoin Magazine and produces the Deep Dive, a series of daily, monthly, and yearly newsletter updates on the bitcoin market. We loved getting his take on many of the central bank topics we talk about on the show.
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December FOMC Minutes and the Powell Pivot We jump right into the FOMC minutes from December, which we wanted to cover on last week’s show, but YouTube had other plans. Analysts expected to read about the accelerated taper and even the beginning of rate hikes in 2022. What they got was a big hawkish surprise.
Not only did the Federal Reserve Board talk about those things, they said it might be necessary to accelerate rate hikes and begin balance sheet normalization. That’s central-bank-speak for Quantitative Tightening (QT), the opposite of QE. That took the market by surprise sparking a mild sell-off in risk assets and even a slight jump in Treasury bond rates.
From the FOMC minutes:
“Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated.
“Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate.”
In 2018 - 2019, Jerome Powell also presided over a major pivot in monetary policy, at that time from tightening to easing. Now, in Powell Pivot #2, he is rapidly moving from easy monetary policy to tightening, even faster than in 2019.
Biden Paints the Federal Reserve as Hawks and the Administration as Doves In a speech, President Biden was speaking about the solution to the rising price of cars. “Either you increase supply by making more of them, or you decrease demand by making Americans poorer.” The administration has set itself up as trying to do the former, with their massive spending bills that have not passed through Congress. On the other hand, the Federal Reserve has completely changed gears in the last 4 months and could be interpreted as pursuing the latter, imposing austerity.
On the podcast, we discussed the possibility of this being political positioning, especially in how close it is to Powell’s reappointment. Almost simultaneously, as his reappointment was secure, he switched to uber-hawk.
Dylan asked why Powell would even want reappointment, it’s a horrible job after all. My response won’t be popular with sound money advocates that hate the Federal Reserve, but I said it might be because he is actually patriotic. He has avoided any CBDC and ESG initiatives, breaking with the Davos globalist group represented by the ECB, the IMF and the EU. He serves American banking interests and might think the alternative, Lael Brainard, would sell the US out to the globalists (probably right about that).
Chinese Communist Party Surprise Rate Cut and Country Garden On Monday, the CCP’s Peoples’ Bank of China cut their target interest rate by 0.1% from 2.95% to 2.85%. This comes just days after the largest property developer in China, Country Garden, failed to complete a $300 million bond issue for the lack of buyers.
This is a major s