The Fed Cuts Interest Rates by 25 bps

hey everyone and thanks for jumping back into the macroverse today we're going to talk about the most recent fomc and of course how it relates to risk assets like Bitcoin if you guys like the content make sure you subscribe to the channel give the video a thumbs up and check out the sale on intothe cryptoverse premium at intothe cryptoverse decom we had a pretty interesting uh meeting today with the fomc the FED did in fact cut rates from 4.7 5% to 4.5% so they cut 25 basis points you can see it here on on the

chart uh interest rates have dropped from a terminal rate this cycle of 55% now this marks uh 100 basis points of rate cuts ever since the rate cutting cycle began back in September but that's not the only thing that we should talk about because while they did continue to cut rates um they've also decided to continue quantitative tightening and you can see that here where it says the committee will continue reducing its Holdings of Treasury Securities and agency debt and agency morgage back Securities so there's this idea that at some point the FED will begin

to expand their balance sheet again but that has not yet happened so if you were to actually just look at um total assets held by the Federal Reserve you can see it's it's mostly just been on a downtrend really since early 2022 and last cycle you can see that they went through a period of quantitative tightening as well but it didn't last nearly as long as this Cycle's quantitative tightening and the reason that of course we mentioned that is because we know and again history doesn't have to repeat itself and there's a chance that dominance

has topped but we do know that last cycle dominance did not actually top until QE began and even then it it was it did sweep the high over a year later so it's at least something to consider as we continue to navigate the cryptoverse try to figure out what is the most likely outcome to remember that it wasn't until QE began that Bitcoin dominance really started to durably go down and that could Pro you know partially explain some of the resilience by Bitcoin dominance recently uh you know it's continue to move back up but the

thing that I I think you should also remember is that there was an almost identical move last cycle by dominance where it dropped in in you know November of the having year which is exactly what it did this time and then it went back up in December of the having year and even continued to go up up until January of the post po having year so there's always a narrative to accompany everything but you could also argue that narrative follows price price does not follow narrative so same thing's happening this cycle as far as dominance

is concerned so far that happened last cycle we'll see what dominance does but still currently at 58% so when thinking about you know monetary policy and and how it affects the markets you know it's also important to look at at what's likely going to happen next year or why are the markets reacting in a certain way obviously the markets have sold off quite a bit here bitcoin's back down to 100K uh the S&P has even dropped almost 3% today which is actually quite a you know quite a big drop for the S&P to drop in

a single day we don't get it that often where you see a 3% drop in a single day and you can see it dropped almost 3% 2.95% so rather steep drop drop uh back down to I suppose this support level here so we'll see if that holds but one of the reasons that that drop could have occurred if you're looking for a narrative to blame is if you go over and look at the summary of economic projections you will see that most Market participants are thinking that the fed's only going to cut twice next year

right and there's some Market participants that think uh they won't even cut that amount and and then there's a few that think they'll cut more than that but sort of the the median number of cuts expected for next year appears to only be two which would get interest rates back down to 4% now this is potentially less than what markets were hoping for and that might be some of the perceived weakness some of the things that Powell said today I'll just read off a few quotes so you can kind of understand his mindset and where

he's coming from he says the economy strong overall uh a broad but he did say that a broad set of indicators suggest that conditions of the labor market are less tight than in 2019 and we've obviously made a lot of comparisons 2019 that was when we had the last rate cutting cycle and he did say uh that downside risks to the labor market has diminished but he went on to say that job creation is now well below the level that would hold unemployment constant the job finding rate is low and declining in other measures measures

such as surveys of workers and businesses quits things like that broadly show a much cooler labor market than we had in 2019 he still believes that policy is meaningfully restrictive which essentially means that he thinks that interest rates right as they stand right now he thinks that interest rates are currently still above our star the neutral rate now if you're not aware what the neutral rate is there it's this theoretical concept um it's like sort of an abstract idea that suggests there exists an interest rate at when interest rates are at or if it's below

that level the economy should expand if if interest rates are above that level the economy should contract and you know it's probably a little bit more Nuance than that you know not everything is is based solely on interest rates but if you do buy into that idea poell is essentially saying that 45% for interest rates is actually still above the neutral rate therefore we it should still help slow the economy down now what he's referring to when he says that job creation is is well below the prior you know the pre-pandemic levels and that people

are having a hard time finding a job what he's referring to are all these CHS we've been going over over here on you know we've been going over on ITC for quite a long time right highers are down you know and highers have been trending down quits have been trending down so you know that stuff has been in a in a pretty long downtrend if you look at the unemployment rate it's still relatively low right and and one of the reasons I think it's relatively low is if you go look at reasons for unemployment the

reasons for unemployment for job losers has been in a fairly controlled uptrend right it doesn't look parabolic the angle of attack isn't the same as what we saw during prior recessions one of the main reasons the unemployment rate has gone up is just new entrance to the labor force right that arguably has been going parabolic suggesting that it's a lot it's actually quite difficult for people to find a job if they don't currently have one but because layoffs are still low if you have a job there's a good chance you've been able to keep it

now obviously that doesn't apply to everyone and you know you got you don't want to be insensitive about that sort of stuff but layoffs if you look at them right if we just look at them objectively go over to layoffs and discharges they've actually been relatively low and on average they've been lower than where they were pre pandemic so You could argue that the markets have still done relatively well despite a slowly un you know slowly increasing unemployment rate because the main reason the unemployment rate is going up potentially is just due to an expanding

labor force rather than layoffs now where it could theoretically become a problem is if you do get layoffs right because if you get layoffs and people aren't hiring that's what leads to the acceleration of the unemployment rate right so if you know if the unemployment R's already going up and layoffs are low if layoffs start to pick up and hiring is low that's how you see the unemployment rate go up a lot quicker and that's what can lead to sort of panic in the markets right those those are when the the recessions actually occur so

it's important to follow this stuff even though it might be somewhat dry and boring to listen to he did go on to say uh that you know said that we are at a point where it makes sense to slow the pace of rate Cuts he says there's also there's no reason to think a downturn is any more likely than it usually is and he also said I think it's pretty clear that we've avoided a recession I do find it somewhat interesting not because he's wrong per se I mean obviously the markets you know we haven't

really seen a recession uh despite a lot of people calling for it only a couple years ago but one of the things you have to remember is that as he says monetary policy operates with long and variable lags right so just because you haven't seen one yet doesn't mean you won't right you could have one still ahead um and we've actually seen some recessions occur right around the time that a new president takes office in fact we saw one in 1981 when when you know Reagan you know when when Reagan began that term um if

you go if you go zoom in over here you can see what I'm talking about right so here's December of 1980 the market kind of topped out for a little bit went down uh for a little while and then ultimately trended uh back up but I mean you you can see what I'm what I'm talking about right so December 1980 and then you get into 1981 Market went down for a little while and then started to go you know to grow to to to grow again but it does go to show that you really can't

discount anything you know when it comes to mon you know when it comes sort of the macro stuff and and I think the other thing with hard with macro stuff is it takes so long to play out by the time certain ideas do play out most people have given up on those ideas um now what what we try to do over here is we try to acknowledge these long-term ideas but remind people that they will likely take years and years to play out so while there's a good chance we do eventually get a recession I

don't really think it's you know the overwhelming favorite of a scenario until you see initial claims come in at around 300 ,000 right right now they're at 242,000 as long as they're down here it's still relatively low once you see them above 300K that's probably when it becomes somewhat problematic but we haven't seen that yet right we haven't seen that yet and there's not ex you know there's no telling exactly when that's going to happen of course it makes sense to go look at at treasury yield spreads because we are starting to see the UN

inversion of the yield curve right so it's interesting because there have been plenty of times in history where the un inversion of the Y curve did you know precede a recession but as I've said previously while sometimes you had a recession within a month or two other times the recession didn't occur for six to 12 months later um and in one case in 1967 it didn't occur until two years later so I I find it interesting that that pal does say that you know he says he think it's pretty clear that we've avoided one I

would agree that we have avoided one in 2023 and we've avoided one it looks like potentially in 2024 um but you know what will history remember this as will it will it just kind of look like this eventually where you get one just as everyone's kind of giving up on the on the idea so at least something to keep in mind uh for 2025 and and potentially 2026 as that yield curve un inverts and remember one of the things about yield curve un inversion is that sometimes it could uninverted then reinert right just because you

see theinverseside you know fed policy and and one of the things that I've mentioned as well is uh the 10-year yield right if you go look at the 10-year yield it it's kind of had an interesting movement interesting movement recently and not one that we didn't anticipate I said when the FED starts cutting in September we were likely going to see the dollar rally until the end of the year and that's basically what's happened right the do the dollar was down at 100 now it's at 108 I'm guessing it's going to Rally into the end

of the year potentially find a top sometime at early January is my best guess on the dollar but the reason I say that is because the dollar and the long end of the yo curve have been fairly highly correlated for quite some time and you can see that the long of the Y curve right the 10-year yield is now bouncing now the reason why this is important is when you look at at sort of what's Happening Here with the 10year yield depending on how you want to draw this right but you can kind of see

that it might be repeating kind of what it did a little over a year ago where it had sort of these tops and then it eventually broke out and then came back down to sort of retest where it broke out from you can kind of see the same thing happening right here where it then eventually broke out and then it went back down to sort of retest where it broke out from now again this is a little bit more of a dubious trend line I'm not really sure it's the exact same thing but you could

argue that there's some similarities there and remember if the long end is breaking out here to go higher then um if you look at what happened last time that this happened the S&P did at least go down for a few weeks before then continuing its you know overall trend back up so do be aware that could happen and also furthermore when you look at assets like TLT uh often times not always but often times they do find sort of macro double bottoms okay so if you look at like sort of the weekly uh for for

something like TLT remember TLT is inversely correlated to um to the long of the Y curve right so if the long of the Y curve goes up TT goes down and so I guess the argument is is it possible for TLT to come back down here where it was in October of 20123 and there is it doesn't have to right but there is some precedent for TLT sort of finding a macro double bottom um you know or even sweeping that low uh before you know before making another move back to the upside so I I

would at least keep an eye on that and you could you could have a double bottom just right here but I wouldn't be that surprised if you saw it down here once again especially with the FED cutting and and it could be the it could be a way of saying that it's not recessionary right the fact that the long the curve is going up you could argue that the long end of the Y curve is doing what the FED is unwilling to do and that is to stay higher for longer and I'm not saying they

haven't stayed higher for longer at all but this is very abnormal right the long end of the O curve does not normally go up this much after the feds after the FED starts cutting rates and one potential explanation for the long of the Y of going up following rate Cuts is that the market is starting to price back in inflationary concerns right so if you go look um if you go look over here at at inflation year-over-year it has started to go up a little bit recently I mean it's not that concerning just yet but

remember it started off slow in the 1970s as well and then in the post election year right so the post having year for for us djones uh it started to really go up and that's what led to a broader Market correction but one of the things that you should note is back then when inflation did start to go back up it was when the unemployment rate started to go back down right so if you look at at say here's the here's the unemployment rate here and if you overlay inflation you'll notice that back in the

1970s right back in the 1970s when when unemployment started to go down that was when inflation started to accelerate again and and the same thing later on the 1970s right but now you're seeing kind of the opposite where inflation's going down but the unemployment rate is going up Powell actually did address this he said and I quote let me see if I can find it um he said the labor market Market is not a source of significant inflationary pressures and I agree with them I mean the unemployment rate is Turing up not tring down in

the 1970s the unemployment rate was trending down and that led to you know more waves of inflation but you could argue that with the unemployment rate trending up this would not be a significant portion of of you know future inflation now if you see the unemployment rate start to go down again then the narrative might change and it I mean it probably will at some point but we haven't seen that yet right we've seen the unemployment rate go up we've seen inflation come down and and now the question is is you know something's got to

give right either inflation needs to keep coming down to to the 2% Target because if it doesn't it just means the fed's going to have to stay restrictive even longer which is going to make the you know which would likely make the the labor market loosen up even more sending the unemployment rate higher so you know certainly a lot of things to consider consider with what Pal's talking about again with quantitative tightening continuing it could explain uh why you know why a lot of these altcoins are stuck in traffic on struggle street today and it

also could help explain why Bitcoin dominance is up you know I've said many times that dominance was going to go to 60% this cycle and it has but that doesn't mean that it can't bounce around there and it's always possible it goes higher I would watch the bull market support band for Bitcoin dominance because you can see it's trying to get back above it and it is above it right now let's see if it gets a weekly close I would also keep an eye on on dominance excluding stable coins because you know it's been in

this wedge uh for you know for a very long time and it's actually looks like it's trying to break back into the wedge right now so you know if it's able to get back in it then that could certainly change the narrative on dominance in 2025 but there's also a good chance that it just gets rejected by the bull market support band and goes down in 2025 but in the short term I think the reason why all coins are are struggling especially on their Bitcoin pairs is just simply because QT continues and last cycle all

all Bitcoin pairs struggled until QT ended now not only did they say that that it's continuing but they gave no clear insight as to when it's going to stop either right they just say that the committee will carefully assess incoming data but that they're going to continue to reduce their Holdings of Treasury Securities and agency debt an agency mortgaged back Securities so um it's interesting because you know I think a lot of times the market participants want to really kind of front run the Fed but then they do and then the FED has to stay

restricted for even longer because Market participants keep trying to front run things so it could just be a game of of of chicken right to figure out who who's kind of who's going to fold first but certainly interesting thing and you know if you look at all Bitcoin pairs actually this is kind of an interesting level for them because they actually also got a move to that exact same level a couple of times in the past right they got a move back to this level in June of 2019 and also they got to move to

that same level in August of 2017 so we'll see what happens here my guess is if they're going to bounce they they won't bounce until the bull market support ban right which is back to say 04 to 041 okay that St they're going to bounce it's probably not till then and there is still a non negligible chance that they do eventually return to the range lows I know it might not be the most likely outcome for a lot of people uh but remember even in November of the even in October of the post having year

in 2017 they were at the range lows so they could eventually find themselves there once again even though Bitcoin dominance did in fact go to 60% already now obviously Bitcoin took a hit today in the grand scheme of things I mean you know this is what the weekly candles look like so it's kind of hard to even notice this like you know the correction but if it does evolve into something more uh just note there is some precedent for it I mean we we saw something similar happened uh with some of the cryptocurrencies back in

2016 when the dollar rallied uh the long of the Y curve rallied we also saw allcoins kind of struggle until the post post having year right until 2025 so this is what happens a lot of December of having years right like everyone kind of gets a little excited from from all front running things in November and then in December people think that alts are going to continue to run and then they just kind of stall out and potentially not make the move that people want them to make until sometime in the post having year this

would not be the first time this has happened um and it could just simply be due to things like the dollar continuing to go up right the dollar goes up Bitcoin dominance normally follows it I mean you can even overlay Bitcoin dominance and see what I'm talking about right normally normally when when when you know the dollar starts to get these rallies right Bitcoin dominance can can start to accelerate back up to the upside and you're kind of seeing something like that potentially start to happen here as it as it's continuing to go up Perhaps

Perhaps Market pres can no longer ignore it and and exactly what happened in late 2016 could potentially happen again where altcoins struggle and then they start to do well again after the dollar tops out now remember the dollar did not top out in 2016 I I actually believe it was early 2017 uh when the dollar topped out you can see there it topped out yeah basically the first week of January so I'm arguing that the dollar is currently in this move right here right sort of the last move uh that it's going to get for

a while and I'm thinking it might go up to 109 110 something like that it could go higher but that's kind of what I'm thinking if you look at a fib retracement uh on this you can kind of see that it's topped out around the 0.5 FIB a couple of times now it's moving higher the one the 618 would put you at 109 the 786 would put you all the way up at at 111 right and remember the prior high is all the way back up near near 115 um so we'll see what the dollar

does but my guess is it will remain strong until sometime early 2025 the other thing that'll be interesting to watch for and I don't think they've made the decision just yet will be the bank of Japan right because the bank of Japan is likely going to keep rates constant if they do raise rates that would be probably a very negative outcome for risk assets right if they do raise rates and the reason is because the carry the carry trade would have to get unwounded even more and the carry trade essentially is just you know looking

at the difference between um or it's basically just people you know uh going over you know going over there to get cheap money because it's easier to do so over there than do so over here and if if the Gap if the spread between interest rates in the United States and Japan Narrows then that carry trade gets Unwound and you can kind of see what I'm talking about right as you can see pre prior times where the difference between interest rates in the United States and Japan uh started to drop uh it it can sometimes

lead to negative economic outcomes as you can see the green shaded region now I think people look at this like oh it has to happen immediately I mean think about this ever since this has been dropping Bitcoin essentially went from like um you know what like 50k all the way up to 100K right so you might say well this is not this has not worked this time but this is one of those things where like it takes years to play out I think a lot of people just lack uh sometimes the patience to see it

play out it doesn't mean you shouldn't be an investor it doesn't mean that you shouldn't take risk or anything like that it just means it's something you should be aware of that could eventually play out and how do you want to navigate such an environment if it does play out the same way it has previously so we are going to likely see the continued normalization of the yield curve um as as the short end continues to go down because the fed's cutting and the longin continues to go up right so you can even see the

yield curve is almost completely normalized from a you know basically a completely inverted yield curve not that long ago right this is what the yield curve looked like about a year ago and then now this is what it looks like today so the the yield curve is normalizing it's it's starting to look a little bit healthier uh and we'll see you know we'll see what happens I guess in in 2025 and and we'll try to follow this stuff I provide you Outlook you know provide these Outlook videos on the macro stuff about once or twice

a month right when the when the inflation data and the macro data the inflation data and the labor market data comes out and also you know whenever there is in fact uh an fomc meeting so that's where we are guys that's where we stand with the markets uh let's go check in on bitcoin one last time so right now it's at around 101k um so I mean again like if you think about it like this if you look at it on the line chart it you know you wouldn't even know you wouldn't even know anything

has happened obviously because it just went to 108 with it all the way back down to 101 of you that has people feeling some type of way uh about that but I wouldn't be I I mean I really wouldn't be that surprised to see dominance kind of hold on uh for for the next few weeks you know and maybe even maybe even go up a little bit more for the next few weeks but sometime in 2025 I do anticipate all Bitcoin pairs going up I think that the concern though is you know will they in

fact have to wait until QE returns to go up because we just haven't seen that yet right we haven't QE return yet therefore there's some level of justification uh that you know that Bitcoin could still outperform the collective altcoin Market even if it doesn't seem like the most likely outcome at the current time but anyways guys we're going to go and wrap it up there I do appreciate you guys tuning in make sure you subscribe give the video a thumbs up and again check out the sale on into the cryptoverse premium at into the cryptoverse

decom see you guys next time bye