What Cooling Inflation Means for the Crypto Market | Video

Good morning and happy Tuesday, it’s July 11th, another day. Another episode of Markets Daily. Thanks for tuning in. As always, we have a lot to cover with our guests today. But first, let’s do a quick update on prices and what’s happened so far this morning because we got a new CP I reading now at 8:30 AM Eastern time, which showed that inflation has dropped to 3%, which is lower than expected. So, very good news for the market and Bitcoin jumped about half a percent on the news and is up 2.22% in the last 24 hours, trading at $59,000. Federer Powell also continued his week of appearances on Capitol Hill yesterday and said, among other things, that the Fed will not wait until inflation is back to 2% to start cutting rates. He also said that interest rates will not fall back to the near-zero territory where they were before the pandemic. So it looks like we might see a rate cut or two this year after all. But we’ll get some reaction and more to all of that with our guest 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 of today’s new reading of the CP I report? Yeah, as you mentioned, it’s a good report. It shows that this inflation as we talked about, right? It’s the month-over-month decline in inflation. That it’s actually on track now. It’s not accelerating, but it’s on a good footing. And I think that’s satisfying for the Federal Reserve. As you also said, because the Fed is not going to wait until that number actually hits 2% and we’re getting close to that. So that means that also for the Fed, that decision to cut rates is coming up, but September is still a little bit up in the air. I don’t think I’ve seen the chance of September moving much yet, but yields are definitely moving lower in reaction to that number. What’s important here too is that, not only did the headline come down, there’s a lot of energy effect there, but it’s actually the headline number that came down a little bit more. And that’s because the rent component that’s finally showing the most slowdown. That’s really good news because that’s where the problems have been centered around inflation, sticky rents and some of the service aspects of CP I as well. So we take it all together. I say it’s, fortunately it’s a good number. Again, it’s the third good number after three, first, bad numbers that we had earlier in the year. So, you know, at least counteracting the trend from earlier in the year. So I expect the next few numbers to be good as well. Either way, I think it’s a good day for the market. Now, I mentioned earlier that Fed Chair Powell said that the Fed is not going to wait until inflation gets back to 2% to start cutting rates. 3% seems pretty close, given where we’re coming from. So is this a good place to start cutting rates? Maybe not in September, but maybe, you know, towards the, the end of the year? Yeah, I think that’s what the market is looking for, this September cut is happening because a party, I think the technicalities that are happening in the futures markets, but you really look at the cumulative number of cuts that are actually pricing in, it actually starts in December. And so I think this is the way that the Fed has a little bit of time here to say, hey, we’re actually getting inflation in the direction that we wanted and that really plays into our hands, 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 reminds me that this is, this is 2015. That was, by the way, a bad year for the markets. But what really mattered was this heightened speculation around the fact that with the GRAS high at that time and at that time as well, everybody was focused on September and said, well, they’re going to do this and they finally didn’t do it without caution and decided to do it in December. That feels a little bit similar to today. You know, what was interesting at that time is that October was a big risk in the ring markets when the Fed finally gave forward guidance to the market saying we were not ready to cut rates. And that, I think is still missing here for the markets today. That number is not going to immediately give Powell the reason to give us forward guidance, meaning, okay, it’s a good number. We’re going to cut rates in September. He, he, he held that back yesterday and I don’t think that would change his mind, uh, today as well on those numbers because it just shows that it’s on track, but it’s not there yet, right? So, as you mentioned, we’re at 3%, not 2%, right? Yeah, it’s interesting that you bring that up because right now the CP I and the unemployment report are, of course, the two most relevant economic reports that the Fed looks at, but there are a lot more indicators for the state of the economy and some of them have been, you know, quite weak in the last few weeks. So how much can we actually, you know, listen to what Powell is saying rather than look at the actual data and that’s where the economy is because for some time now the forward-looking indicators, the leading indicators, have all been pointing to this weakness and have left, you know, commentators cautious, if not very, scared about how we’re already in a recession and we’re not careful enough to tighten and therefore we’re going to end up in a very bad recession. And that’s not really thrown out there in part because I think, again, the idea of ​​forward-looking is just based on surveys and certain indicators that by definition are more forward-looking, they’re not necessarily always. Right. Right. Because just as interest rate expectations have been wrong over many years, you know what the Fed has finally delivered in terms of, of rate hikes or rate cuts. So I think it’s really the hardest data like AC PI like a Payrolls report like the jobless claims this morning, notable droppers game dropped back to 222,000 lower in, I think the last four or five weeks, it still underscores like it’s a cooling labor market but not really deteriorating. That’s the hard data. That’s what I think matters a little bit more than these forward-looking indicators, although they’re not wrong, but they tend to overextend themselves. And so I think as an investor, I say, like I just take this hard data and 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 bias 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 like this rate because it’s close right now. Coming back for a second to, you know, Powell’s words, the market, including cryptocurrencies, has been reacting positively to Powell’s remarks this week, it’s the market right here, 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 mentioned. But I think what they’re, what they’re looking at is that he, you know, these words about models for inflation progress and significant cooling in the labor market. These modest and significant words are for the markets to say, wow, you wouldn’t say words like that if you weren’t closer to a decision in your mind, right? When are you going to cut the rate, I think that’s all of that, that 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 these words. I just started to recover again when you mentioned that, you know, risk in markets like Bitcoin or, or, or the S and P 500. Yeah, it gets a boost from that because what we, what these markets are doing is just discounting for when the Fed will, will actually cut rates. And that just drives those prices up. I would say on the other hand that, that interest rates as in treasury yields would be fairly range bound, but no longer like the lower end of the range, we haven’t seen a significant move down there in yields yet. And that’s because including today’s number is deflating, but it’s not like saying we’re going to a deflationary environment, really low inflation environment. That’s not about the data saying. So, um, I think the markets are taking the power at their word. They still want to see several months of data before they actually make that decision. Is, is that a lesson? Now the Fed has two mandates, as you know, better than I do. Um, it’s, it’s keeping inflation low and the job market strong between the two at the moment. What would you say? Is the Fed more focused on or, or what, what is their priority right now? I think there’s still uh uh inflation as the top priority because the labor market is balancing out and that’s the formulation that they’ve been using for the last six months or so. And that’s nothing more. And just seeing payroll growth moderating further and seeing these jobless claims going up a little bit and the employment rate going up a little bit and it’s really driven by labor supply because of all the immigration 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 this saying as if it’s a normal healthy pattern in the labor market that was previously really scorching hot and as a result, wage gains are moderating a little bit. But the inflation numbers, they then have these reports in the minutes also highlighting as if it’s slow progress, right? They made good progress last year and then it stalled and slowed down and became a little bit of a concern and maybe now we’re back on track but we’re not, we’re still making slow progress. And I think that’s why it makes them cautious, like if it’s so slow, we can make quick moves here with rates, you know, they want to cut rates. I think that’s not a problem on the Fed side, but it’s really about making sure that they actually do it at the right time or at the time that they can, because if they don’t, there’s a concern that they, you know, actually make the wrong decision at the wrong time and let things heat up again and become too inflated, right. So the slow progress is, I think that’s why they’re focusing on the demand side of inflation. Right. Well, I think today’s report was certainly a step in the right direction. Uh Thanks Ben for coming on the show. Thanks, Elena. Great to be here. Thank you. That was Ben Emmons, founder and CEO of Fet Watch Advisors. Thanks for watching today.

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