Powell’s FOMC Comments Impact Crypto Liquidity and Market Expectations
Key Points from Quinn Thompson on Powell's FOMC Comments
- Jerome Powell's post-FOMC messaging on October 29 was seen as political maneuvering rather than addressing macroeconomic uncertainty.
- Powell broke from his usual approach by directly commenting on market expectations, suggesting that future rate cuts depend on the U.S. government reopening.
- The Federal Reserve cut its policy rate by 25 basis points but indicated that further reductions are uncertain, leading to market repricing.
- This uncertainty affected various markets including crypto, as investors perceived Powell's comments as a hawkish surprise.
- Thompson interprets Powell’s comments as leverage in political negotiations, warning against the continued government shutdown impacting economic data flow.
- The Fed plans to stop quantitative tightening on December 1, signaling an injection of dollar liquidity into the system which could benefit crypto markets.
- Ending QT early was unexpected and seen as liquidity-positive, potentially starting a new crypto liquidity regime.
- Despite uncertainties, Thompson believes continued easing is likely once government data collection resumes, favoring crypto investments.
- As Powell’s term nears its end, there is an expectation of maintaining liquidity conditions, which could be beneficial for crypto markets.
Crypto Market Implications
- The anticipated halt in balance sheet reduction and reinvestment in Treasury bills suggests increased dollar liquidity.
- This creates a favorable environment for crypto, tech, and high beta credit markets sensitive to cash flows.
- The total crypto market cap at the time was $3.73 trillion.
