Bitcoin - The Fed more patient than the ECB

The Fed kept its key rate unchanged, constrained by inflation that remains too high. Little impact on bitcoin.

The Fed more patient than the ECB

Unlike their counterparts at the ECB, Fed governors unanimously voted to keep the key rate between 5.25% and 5.50%.

This key phrase was repeated for the fourth time in a row:

“In considering any rate adjustments, the Committee will carefully evaluate incoming data, the evolution of the outlook, and the balance of risks. The Committee does not expect it to be appropriate to reduce rates until it has gained greater confidence that inflation is moving sustainably closer to 2%.”

Another phrase found in the statement since the beginning of rate increases:

“The Committee is strongly committed to bringing inflation back down to its 2% goal”, which is a message for those calling for the inflation target to be raised to 4%. That is, those who anticipate increasingly high inflation due to the depletion of fossil fuels.

End of quarter obliges, the Fed released its latest economic forecasts, notably the famous “dot plot” where each of the 19 governors announces their views on rates, GDP growth, inflation, etc.

These median projections do not constitute a Fed decision nor a commitment. They are a summary of how the 19 participants view the economy’s evolution at the moment. Here is a summary of what it says:

-0 rate cuts this year: 4 governors (they were 2 in March)
-1 rate cut this year: 7 governors (they were 2 in March)
-2 rate cuts this year: 8 governors (they were 5 in March)

The median projection for the long term has risen from 2.6% to 2.8%. This is the rate that will prevail when the Fed has finished with the cuts.

The dot plot shows the outlook for various FOMC members

0 rate cuts this year: 4 Members
1 rate cut this year: 7 Members
2 rate cuts this year: 8 Members pic.twitter.com/IloUltSNRS

— Benjamin Cowen (@intocryptoverse) June 12, 2024

Regarding its balance sheet, the Fed has already shed more than $1.7 trillion of assets since the start of QT in July 2022 (out of a total of $8 trillion purchased since the 2008 crisis). The Fed will continue, but at a slower pace starting this month.

[Quantitative Tightening = Inverse of Quantitative Easing (QE). The Fed sells the assets it holds on its balance sheet].

Its balance sheet will now decrease by $25 billion per month (Treasury bonds), compared to $60 billion previously. The reduction is $17 billion per month for MBS (mortgage-backed securities inherited from the 2008 crisis). For comparison, note that the ECB is reducing its balance sheet at a rate of only €7.5 billion per month.

Bitcoin reacted mixedly to these announcements, but the main thing is that we are getting closer to rate cuts.

The fiat system being a ponzi scheme requiring perpetual expansion, the money supply M2 will start growing again very soon. Like the tide, it will lift all valuations and especially that of the only asset existing in finite quantity, bitcoin.