Rethinking the Fed Interest Rate Pivot \ stacker news ~bitcoin

513 sats \ 11 comments \ @grayruby 13 May 2023 bitcoin

First the caveat, I have been completely wrong about this fed hiking cycle from the beginning. Both in quantity and duration so take everything I say with a huge grain of salt.

That being said, I am starting to rethink the potential for the fed pivot. Yes, they are between a rock and a hard place, yes the economy will crumble if rate hikes continue or current funding rates persist for more than a couple more quarters and yes more banks will collapse and yes all of it will get backstopped by countless esoteric versions of liquidity operations by the Fed. All of this I am certain of.

However, I am starting to think the idea rates will drop back to zero or whatever your preferred lower bound target is any time soon may be wrong. I think they might just have enough hubris to believe they are wise enough to suck and blow perpetually. Sure tons of US debt has to get rolled over at higher rates this year and the rates can't remain normalized forever or the US debt spiral will spiral out of control. But the fed can always buy up any US treasuries the market doesn't want so I don't see a danger of US not being able to fund itself in the next few years at least.

So right now I am completely sold on liquidity injection pivot, which has already started but unsure the rate pivot is coming any time soon.

Thoughts?

view all related items

21 sats \ 2 replies \ @jk_14 13 May 2023

and what can tell you an old cynic :)

Of course, there will be no rate cuts by the FED this year (it will be great if there are no further hikes ;)

The FED will fight inflation, because the presidential election is only a year ahead and US govt with FED must not lose the votes of half of Americans who live day by day without savings and the greater the monthly increase in spending due to inflation, the more they are f...d and nervous
on the same fire of high rates, the FED will cause bankruptcies of US banks (acquisitions ;) ultimately reducing the number of banks to the "Big Four" in "best" scenario
The FED will print cash for bank takeovers on an ongoing basis, because it is obvious that the "Big Four" will not take such losses on their backs for free, but this freshly printed cash will not go directly to the market, so there is a chance that the inflation tsunami will be delayed until after the 2024 election
The FED will advertise that the only way to avoid such a crisis in the future is to introduce CBDC and will get along easily with the "Big Four" rather than with banks "plankton", which will no longer exist

win-win-win-win situation ;)

0 sats \ 0 replies \ @grayruby OP 14 May 2023

Tend to agree.

0 sats \ 0 replies \ @grayruby OP 14 May 2023

deleted by author

10 sats \ 0 replies \ @quark 13 May 2023

Not long ago the Fed was saying they were not even thinking about thinking to hike. And then the inflation was transitory. We all know what happened immediately next. You simply cannot trust the Fed.

Now they say they will hold for longer. So we know what they may do. They also said they don't want to do a redo of the 70s inflation reigniting when it was thought under control. So that is exactly what it may happen then.

They market expects various rate cuts already in 2023. Not just pause, but cuts! This means it is expected that there is going to be a strong recession. Powell said though, that he hopes on no recession or a very small recession. He still thinks he can soft land this. So I need to be ready for the big crash. Pause summer. And cuts for autumn/winter

10 sats \ 0 replies \ @faithandcredit 13 May 2023

Yeah seems like rates will remain high and fed will simply pick the winners as things begin to break. Spoiler: probably no asset or institution or group of people that is considered remotely anti establishment will get any help from the fed or congress.

10 sats \ 1 reply \ @faithandcredit 13 May 2023

The problem they have with lowering interest rates is "what if it don't work". I mean the economy is probably crashing no matter if the rates are high or low due to how unsound a big portion of it is. But if they lower rates and the economy crashes anyway then its going to be a bigger credibility loss than if things crash while interest rates are high because then they can claim policy error but if things crash while rates are low they have no good excuse? And end the fed movement grows bigger possibly

Also as a side note the military industrial complex have alot of influence on policy, as do pharmaceutical companies, but the financial lobby also have a lot of power and money and they want volatility above all else, so they will also pressure fed to squeeze and break things so they may make money from the volatility that causes. It's a cold world in that respect.

0 sats \ 0 replies \ @grayruby OP 14 May 2023

Good points.

10 sats \ 1 reply \ @Undisciplined 13 May 2023

We're already seeing near record contraction of the money supply, so I expect them to start dropping rates soon to spur borrowing. Also, the housing market hasn't been destroyed yet and they may be looking to reduce rates before housing prices get annihilated.

Some of this depends on how the ruling class wants to deal with Biden. Usually, the Fed tries to really juice the economy when an incumbent is seeking reelection, but I've been hypothesizing that they're trying to get Biden out of the way. If more subtle methods fail, they may let the economy bottom out.

21 sats \ 0 replies \ @grayruby OP 13 May 2023

I think this is a fair analysis of the situation.

1 sat \ 0 replies \ @stooge 13 May 2023 freebie

Too many people are worried about the FED. Things are okay in the real economy... maybe not great but okay (the world is not ending and in fact things are healing slowly). It's a good thing that interest rates are above nearly zero (when they were close to zero people complained it was unhealthy and they feared negative rates). How any banks or money managers could did not consider that the FED could raise rates is beyond me (does anybody do independent thanking anymore ?). We must be close to max fear in the markets now (FED, Banks and War). Once you have survived a few bitcoin 80% drops this is nothing.

Some small local banks are doing great.

PS PS

There is a bank that is almost never mentioned that has more money vaulted than maybe another bank (hint it's a Chicago bank not New York bank).

0 sats \ 0 replies \ @sudonaka 14 May 2023

https://twitter.com/crypto101pod/status/1656383361479331842?s=46