The Fed Taper, CPI And Bitcoin

This episode of “Fed Watch” covered the global macroeconomic latest, Fed taper and, of course, Bitcoin.

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In this episode of Bitcoin Magazine’s “Fed Watch” podcast, we, your hosts Christian Keroles and Ansel Lindner, caught listeners up on the global macroeconomic situation, discussed some financial current events and the Fed taper and, of course, dove into the current state of Bitcoin.

The first topic is a trip around the world starting in China. The CCP surprised the market recently with a reserve requirement ratio (RRR) cut. From Reuters, “Late on Friday, the People’s Bank of China (PBOC) said it will cut the amount of cash that banks must hold as reserves, releasing around 1 trillion yuan ($154.19 billion) in long-term liquidity to underpin a post-COVID economic recovery that is starting to lose momentum.”

This is being seen by many as a warning sign of a slowing Chinese recovery.

Next, we covered Germany’s slowdown in purchasing managers index (PMI) and factory orders. While the headline numbers look just okay, factory orders from outside the Euro area fell by 9.3% according to Germany’s Federal Statistics office destatis. Germany is a bellwether for the global economy and that print doesn’t sound like global recovery.

Last on our world tour, we discussed Japan’s Japanese government bonds (JGB) yields. Earlier in the year, Japanese yields were taking off, signaling growth and health of the economy, but since February, they have done an about-face and are again approaching zero. So, two important economies, Germany’s and Japan’s, are flashing red slowdown. Jeff Snider from Alhambra Partners had a great write up on both Germany and Japan.

Then, we got into the U.S. with Fed taper talk. We attempted to represent the conflict in which the Fed finds itself. It is stuck between actual economic indicators showing transitory inflation with the global economy rolling over and expectations policy with a financial press screaming “inflation,” like “fire” in a theater.

Yes, the CPI for June was once again over 5%, coming in at 5.4% from the BLS, but prices are not solely affected by credit inflation and growth, which is what would be needed for sustained runaway inflation. However, the mainstream is so convinced that inflation is about to take off, it is able to apply pressure to the Fed, which is foremost concerned with managing the public’s expectations. That’s where the taper talks come in.

It is speculated that the Fed might be uncharacteristically creative with monetary policy in the next few months by reducing the mortgage-backed securities (MBS) portion of QE. This would solve the public expectation of taper, while not touching the U.S. Treasury portion of QE. It seems logical, but will the Fed break with QE tradition to go this way? That remains to be seen.

To wrap up the show, we tackled the CPI in depth. The biggest factors affecting the CPI over the last few months have been: one, the year-over-year (YoY) nature being compared to the very low period in mid-2020; two, used car prices skyrocketing due to supply chain issues for new cars; and three, energy, as oil continues to defy gravity. All these factors are transitory, by the way.

Overall, this is a must listen episode if you want to stay current on the global economy, the recovery, monetary issues and how bitcoin is fitting into the conversation.


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