Bitcoin – The Fed more patient than the ECB

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

The Fed more patient than the ECB

Unlike their ECB counterparts, Fed governors voted unanimously 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 adjustment, the Committee will carefully evaluate incoming data, the evolving outlook and the balance of risks. The Committee does not expect that it will be appropriate to cut rates until it gains greater confidence that inflation is sustainably approaching 2 percent. »

Another sentence found in the press release since the start of the rate increases:

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

At the end of the quarter, the Fed published its latest economic forecasts, and in particular the famous “dot plot” in which each of the 19 governors announces their views concerning rates, GDP growth, inflation, etc.

These median projections do not constitute a decision by the Fed, nor a commitment. They are a summary of how the 19 participants see the evolution of the economy at the moment t. Here is a summary of what he says:

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

The median projection for the long term increased from 2.6% to 2.8%. This is the rate that will be in effect when the Fed finishes cutting.

Concerning its balance sheet, the Fed has already offloaded more than $1,700 billion in assets since the start of QT in July 2022 (out of a total of $8,000 billion purchased since the 2008 crisis). The Fed will continue, but at a slower pace starting this month.

[Quantitative Tightening = Inverse du Quantitative Easing (QE). La Fed revend les actifs qu’elle détient dans son bilan].

Its balance sheet will now fall by 25 billion dollars per month (Treasury bills), compared to 60 billion previously. The reduction is $17 billion per month for MBS (real estate loans inherited from the 2008 crisis). For comparison, note that the ECB is only reducing its balance sheet at a rate of €7.5 billion per month.

Bitcoin has had a mixed reaction to these announcements, but the bottom line is that we are getting closer to a rate cut.

Since the fiat system is a ponzi requiring perpetual expansion, the M2 money supply will start growing again very soon. Like the tide, it will raise all valuations and in particular that of the only asset existing in finite quantity, bitcoin.

Nicholas T.

Reporting on Bitcoin, “the goddess of wisdom, feeding on the fire of truth, exponentially growing ever smarter, faster, and stronger behind a wall of encrypted energy”.