What Cooling Inflation Means for the Cryptocurrency Market | Video

Good morning and happy Tuesday, it’s July 11th, another day. Another episode of Markets Daily. Thanks for listening. As always, we have a lot to tell our guests today. But first, a quick update on prices and what’s happened so far this morning because we just got a new CP I reading at 8:30 AM Eastern time that showed inflation has fallen to 3%, which is lower than expected. So, great news for the market and Bitcoin jumped about half a percent on the news and is up 2.22% in the last 24 hours to trade at $59,000. Fetcher Powell also continued his week of appearances on Capitol Hill yesterday and said among other things that the Fed will not wait for inflation to return to 2% to start cutting rates. He also said that interest rates will not go back down to near zero, like they were before the pandemic. So it looks like we could maybe see a rate cut or two this year after all. But let’s react and more to all of that with our guests today, who is Ben Emmons, founder and CIO of Fed Watch Advisors. Good morning, Ben. Good morning. Thanks for having us. Sure, Ben. What do you think about today’s reading of the CP I report? Yeah, as you said, it’s a good report. It shows that this inflation that we’re talking about, right? It’s the month-over-month decline in inflation. Which is really on track now. It’s not accelerating, but it’s on a good footing. And I think that’s good for the Federal Reserve. As you also said, the Fed is not going to wait for this number to actually hit 2% and we’re getting close to that. So that means that for the Fed, this rate cut decision is getting close as well, but it’s still going to be a little bit of a mixed bag in September. I don’t think I saw the possibility of September changing too much yet, but yields are definitely coming down in reaction to this number. What’s important here is that, not only was the stock down, there’s a lot of energy effect there, but it’s really the underlying number that, that’s come down a little bit lower. And that’s because the rent component that ultimately shows a further deceleration. That’s really good news because that’s where the problems have been concentrated in inflation, rigid rents and then some of the services aspects of CP I. So let’s take it all together. I say it’s, fortunately it’s a good number. Again, it’s the third good number after the first three bad numbers that we had earlier in the year. So getting, you know, at least neutralizing the trend from the beginning of the year. So hopefully the next few numbers will be good as well. Either way, I think it’s a good day for the market. Now, I just said earlier that Fed Chair Powell said that the Fed is not going to wait for inflation to get back to 2% to start cutting rates. 3% seems pretty close considering where we’re coming from. So is that a good place to start cutting rates? Maybe not in September, but maybe, you know, later in the year? Yeah, I think that’s what the market is doing, this September cut is happening because a party, I think the technicalities that are going on in the futures markets, but you really look at the cumulative number of cuts that are really pricing in, it actually starts in December. And so I think that’s the path that the Fed has a little bit of time here to say, hey, we’re really driving inflation in the direction that we wanted and it’s really working in our favor, so to speak. So, you know, you’re getting a little bit of a repeat of what I wrote in my note this morning. You know what that reminds me of is, it’s 2015. That was, by the way, a bad year for markets. But what it was really about was this heightened speculation that when, with the high Gras at that time and even then, everybody was focused on September and saying, well, they’re going to do it and they ultimately didn’t do it without caution and decided to do it in December. It looks a little bit similar to today. You know, what was interesting at the time is that October was a huge risk in the ring markets when the Fed finally gave forward guidance to the market saying we’re not ready to cut rates. And that, I think is still missing here for the markets today. This number is not going to immediately give Powell the reason to give us forward guidance, which is to say, okay, that’s a good number. We’re going to cut rates in September. He, he, he delayed yesterday and I don’t think he would change his mind, uh, today even on these numbers because they just show that he’s on track, but we’re not there yet, right? So, as you said, we’re at 3% and not 2%, right? It’s interesting that you bring that up because now CP I and the unemployment report are obviously the two most relevant economic reports that the Fed looks at, but there are a lot of other indicators for the state of the economy and some of them have been, you know, pretty weak in the last few weeks. So how much can we really, you know, listen to what Powell is saying instead of looking at the actual data and that’s where the economy is because it’s been out for some time that the forward-looking indicators, the leading indicators are all pointing to this weakness and it’s made, you know, commentators cautious if not very scared that we’re already in a recession and we’re not careful enough to tighten too much and then we’re going to end up in a really bad recession. And that hasn’t really played out partly because I think again, the idea of ​​looking forward is based only on surveys and certain indicators that by definition are more forward-looking, they’re not necessarily always forward-looking. Right. Right. Because just as interest rate expectations have been wrong for many years, you know what the Fed has ultimately delivered in terms of high rates or cuts. So I think it’s really the more hard data like AC PI like a payroll report like the jobless claims this morning, the notable droppers are down again to 222,000, the lowest in, I think the last four or five weeks, you’re still emphasizing like this is a labor market that’s cooling but not really deteriorating. That’s the hard data. I think that’s what matters a little bit more than these forward-looking indicators, even though they’re not wrong, but they tend to overextend. And so I think as an investor, I say, I kind of take this hard data and I look at the trend in the hard data. And what that tells me from CB I today is we had two bad prints at the beginning of the year. We’re getting two good prints, three good prints back. So my trend is flat. So I might say, OK, if the next number comes out better than expected, like weaker, so to speak, then maybe you could say this rate because it’s close right now. Going back to Powell’s words for a second, the market, including cryptocurrencies, has reacted positively to Powell’s remarks this week, it’s the market here in taking his words as a bullish indicator to some extent because, you know, he was cautious and he, he didn’t want to give us any guidance as I said. But I think what they’re, what they’re taking away from this is that he, you know, these words about the models for the advance of inflation and the significant cooling of the labor market. Those kind of modest and significant words are for the markets to say, wow, you wouldn’t say words like that if you weren’t closer in your mind to a decision, right? When you’re going to cut the rate, I think that’s all this, this kind of fat part of the game as we call it. Uh You know, and I think that’s why the markets are latching onto those words. I just started to get back as you said, you know, risk on markets like Bitcoin or, or, ol’ S and P 500. Yeah, it benefits because what we, what those markets are doing is just pricing in for when the Fed actually cuts rates. And that just drives those prices up. I would say on the other hand that, those interest rates like in Treasury yields would be pretty capped but not like the lower end of the range anymore, we haven’t seen a significant move down in yields yet. And that’s because including today’s number is disinflationary, but it’s not like saying we’re going to go into a deflationary environment with really low inflation. It’s not about the data that they say. So, um, I think the markets are taking power at their word. They still want to see several months of data before they actually make that decision. Is that, is that a takeaway? Now the Fed has two mandates like, as you know, better than I do. Um, it’s keeping inflation low and labor market strong between those two right now. What would you say? The Fed is mostly focused on or or what is their priority right now? I think there is still uh uh inflation as the highest priority because the labor market is coming into equilibrium and that’s the wording that they’ve been using for the last six months or so. And that’s it. And just seeing payroll growth moderate further and seeing these unemployment claims rise a little bit and the employment rate rise a little bit and it’s really driven by labor supply because of all the immigration influx into the labor market that has actually added net supply of workers. And that’s led to this cooling trend. So they’re looking at that said as if it’s a normal healthy pattern in the labor market that was really hot and steamy before and as a result, wage increases are kind of moderating. But the inflation numbers, so they’re with these reports in the minutes that were also highlighted as slow progress, right? They made good progress last year and then they stalled and slowed down and got a little bit worrisome and maybe we’re back on track now, but we’re not, we’re still making slow progress. And I think that’s why it makes them cautious, like if it’s that slow, can we make some quick moves here on rates, you know, they want to cut rates. I think that’s not a problem on the Fed’s part, but it’s really about making sure that they’re actually at the right time or at the right time that they can because if they don’t, there’s a concern that they’re, you know, actually making the wrong decision at the wrong time and letting things heat up again and get overinflated, right. So the slow progress is, I think that’s why they’re focused on the demand inflation side. Right. Well, I think today’s report was definitely a step in the right direction. Uh, thank you, Ben, for coming on the show. Thank you, Elena. It was great to be here. Thank you. That was Ben Emmons, founder and CEO of Fet Watch Advisors. Thanks for tuning in today.

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