VAV Crypto Research and Analytics

📝✅ What are the key points from FOMC - and what does it mean for asset markets?
This week's FOMC was a "steady as she goes" meeting.
Rates unchanged.
Fed chair Jerome Powell believes:
Financial conditions are meaningfully restrictive - labor market is weakening and inflation is falling.
But further progress must be seen on weakness in the labor market and/or inflation to see continued rate cuts - Fed not in a hurry to cut rates.
And, we finally got a question on Quantitative Tightening.
Powell said:
"The most recent data do suggest that reserves are still abundant. We do plan to reduce our balance sheet... We are closely monitoring a range of indicators to access conditions."
So, no change - QT continues.
So what does all of this mean for asset markets?
In my view, this meeting wasn't explicitly "bullish" or "bearish" for asset markets.
It was essentially "as you were".
And "as you were" is: inflation slightly elevated but not likely to move massively higher in the medium-term, growth humming along nicely, business cycle improving.
Asset markets initially sold off upon the release of the FOMC statement - which seemed to have a hawkish tilt due to a change in wording around inflation...
...but then recovered during the press conference when Powell confirmed the change of wording was a "clean-up" of the statement and not an indication of a change in the Fed's views on inflation.
I don't think there is anything to be fearful of here in relation to the Fed.
Rate hikes are seemingly not in the picture, the Fed is still "in a cutting cycle", but pausing.
To push higher, asset markets don't need the Fed to be continually cutting, they just need the Fed to be continually tilted towards further cutting.
In fact, the slower the cuts, the better - generally - because it indicates no panic.
Gold has already made a new all-time high today.
Risk assets have generally been trading in a range for months, but recently, on the whole, have been consolidating at the top of that range (bullish).
Everybody decided to panic about Chinese AI for ten minutes on Monday.
This actually created what looks like quite bullish price action.
Both the S&P 500 and bitcoin retested the Point of Control of the range (🟡) and bounced strongly back out of the range Value Area (sign of strength).
And in the current climate, a pause in rate cuts might mean the Treasury market stops freaking out, as it has done in recent months.
10-year Treasury yields have been falling since January 14, and have continued to decline following FOMC.
The Treasury yield indicator below (overlaid with S&P 500) flipped green on January 17.
This indicator aims to capture (in red) when yields are in the area that has historically negatively affected risk assets.
That "area" is when yields (US10Y) move to the 80th percentile of their rolling 1 quarter (63 day) range
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