The Powell Pivot ft Dylan LeClair - FED 77

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In this episode of Bitcoin Magazine’s “Fed Watch'' podcast, Christian Keroles and I sat down with Dylan LeClair to talk about all Federal Reserve news, rate hikes, balance sheet normalization (QT), US government austerity, and world news. Dylan is the Head of Market Research for Bitcoin Magazine and produces the Deep Dive, a series of daily, monthly, and yearly newsletter updates on the bitcoin market. We loved getting his take on many of the central bank topics we talk about on the show.

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December FOMC Minutes and the Powell Pivot

We jump right into the FOMC minutes from December, which we wanted to cover on last week’s show, but YouTube had other plans. Analysts expected to read about the accelerated taper and even the beginning of rate hikes in 2022. What they got was a big hawkish surprise.

Not only did the Federal Reserve Board talk about those things, they said it might be necessary to accelerate rate hikes and begin balance sheet normalization. That’s central-bank-speak for Quantitative Tightening (QT), the opposite of QE. That took the market by surprise sparking a mild sell-off in risk assets and even a slight jump in Treasury bond rates.

From the FOMC minutes:

“Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated.

“Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate.”

In 2018 - 2019, Jerome Powell also presided over a major pivot in monetary policy, at that time from tightening to easing. Now, in Powell Pivot #2, he is rapidly moving from easy monetary policy to tightening, even faster than in 2019.

Biden Paints the Federal Reserve as Hawks and the Administration as Doves

In a speech, President Biden was speaking about the solution to the rising price of cars. “Either you increase supply by making more of them, or you decrease demand by making Americans poorer.” The administration has set itself up as trying to do the former, with thei