Yes, you read it well. The growing talk of the Forest Federal Reserve Trims is disturbing me. If I were a merchant today, I would be seeing price drops below the short -term mobile averages, preparing for what could be developed in a large sale.
But before immersing myself in why, we will review again last Friday.
Powell opened the door to a September rate cut
The president of the Fed, Jerome Powell, seemed to support Fed’s tariffs during his speech at Jackson Hole on Friday. According to the Raboresearch Global Economics and Markets, the key phrase in Powell’s speech was: “With the restrictive territory policy, the reference perspective and the changing balance of risks can justify adjusting our policy position.”
Powell even acknowledged that “the downward risks for employment are increasing,” leaving the door open to rates cuts in September, although without any commitment. These comments increased Fed rates reduction bets, sending markets, including Bitcoin and Ether, strongly higher.
These expected cuts arrive in a record fiscal expense, record assessments in shares and cryptography, a record supply M2 not only in the United States, but also throughout the world, and almost absent volatility among assets. This cocktail raises the question: how much more will the cost of cheaper loans really move the needle?
The founders of the London Bulletin Service offer this perspective: “Increase rates cuts will have an impact on the markets, but there are much larger drivers than those fed at this time that drive this upward market. We have a global monetary flexibility and an increased stimulus of M2. Participate in the ‘Treasure qe’ to artificially suppress the performance curve loading the emission of the debt in the front of the curve Through T invoices “.
In other words, the Treasury has been carrying the issuance of the debt in short maturities, increasing the demand and the supply of short -term values, which helps keep the short -term interest rates low. This strategy is similar to a form of “quantitative flexibility of the treasure” where, instead of the Fed purchase bonds, directly to inject liquidity, the treasure debt emission pattern supports low yields in short debt of short duration.
But the question still persists: how much stimulus is it too much?
Handle juice: the American economy with steroids
I cannot avoid seeing the economy of the United States, and many developed economies, as professional bodybuilders implacably pump multiple steroids to their systems to improve their muscles.
Economists have drawn this analogy repeatedly: fiscal spending (Government Expenditure) and monetary policies (An increase in the Central Bank assets) They are the anabolic steroids of macroeconomy: emergency measures to return the lives of the economy. They increase the economy artificially, but come with hazardous and durable side effects.
Jim Bianco, president of Bianco Research, described the rate of steroid cuts to the system. David Kelly, from JPMorgan, described the recovery in the form of V after the Covid 2020 accident as “a type of steroid recovery” that will inevitably slow down once the tax steroids disappear.
But the government never stopped injecting those steroids. According to the Congress Budget Office (CBO) and the Peter G. Peterson Foundation, a group of fiscal policy experts, fiscal spending as a percentage of GDP has remained higher than pre-pondemic levels of around 23-25%, with forecasts that show highly sustained total totals in the coming years.
Some call this the fiscal policy of the Biden era on steroids, the Trump administration continued, where massive tax cuts are expected to be planned under the only draft large and beautiful law, more trillions accumulate more about the deficit.
In summary: Uncle Sam has never left the march. He made a monetary steroid pause briefly in 2022-23, but increased fiscal steroids in a form, whereby it is an Olympia athlete who changed testosterone by high-power train.
And now? The Fed is prepared to add testosterone to the mixture with rates cuts.
Approaching the steroid resistance?
The continuous use of steroids has consequences. In medicine and bodybuilding, the sustained use of steroids eventually leads to resistance: there is a saturation point, beyond which muscles stop responding to increasing steroid doses, while side effects accumulate.
Hormonal regulatory systems of the body are adjusted by the negative regulation of androgen receptors or altering hormonal metabolism. This reduces anabolic effects despite the highest steroid doses. There have been cases of non -wiring use of steroids that lead to failures of organs and deaths.
Biological feedback mechanisms that cause steroid resistance have a clear parallel in economics: The non -wiring use of the monetary and/or fiscal stimulus or a combination of both produces decreasing yields, which means that the law of the decrease in marginal utility is established and, finally, saturation is reached, where only side effects prevail, while the positive ones are void. The effects of muscular construction, economic growth, the plateau, but the side effects, of the bubbles of inflated assets to the fugitive debt) can become dangerous.
And that is precisely the potential risk for the US economy of persistent stimulus measures. Unlike disciplined athletes who accumulate steroids to maintain effectiveness and health, the economy of the United States has been in one steroids or another for five implacable years, nor a break, never a restart.
When does marginal efficiency become negative? When do any benefit exceed the side effects? No one knows.
But the talk around the cuts of the Fed rate, in a landscape where the fiscal stimulus flows freely and the prices of assets are already at lifetime, feels like pushing a bodybuilder already with excess of work with a synthetic cocktail that runs the risk of more damage that helps.
Therefore, the merchant in me is nervous, and worried that financial steroids can constantly lose their blow, which leads to mortality.
Omkar Godbole is co-manager of Editor and Coindesk analyst. The opinions expressed here are your own advice and non -financial.
