A combination of multiple support levels, including a 21-month exponential moving average, helped ETH price rebound by nearly 30% from its local bottom.
Tag: TAPERING
Fish food? Data shows retail investors are buying Bitcoin, whales are selling
Bitcoin (BTC) staged an impressive recovery after dropping to its three-month low of $42,333 on Dec. 4, rising to as high as $51,000 since.
The BTC price retracement primarily surfaced due to increased buying activity among addresses that hold less than 1 BTC. In contrast, the Bitcoin wallets with balances between 1,000 BTC and 10,000 BTC did little in supporting the upside move, data collected by Ecoinometrics showed.
“Bitcoin is still stuck in a situation where small addresses are willing to stack sats [the smallest unit account of Bitcoin], while the whale addresses aren’t really accumulating,” the crypto-focused newsletter noted after assessing the change in Bitcoin amounts across small and rich wallet groups, as shown in the graph below.
Ecoinometrics further asserted that the situation for Bitcoin is “not ideal,” suggesting that the BTC price may end up resuming its decline in the absence of influential buyers.
Bitcoin’s downside target sits near $42K
Ecoinometrics’ bearish outlook appeared as Bitcoin grappled with the Federal Reserve’s policy decision on Wednesday to reduce its bond purchases by $30 billion every month to unwind them down by April next year entirely.
The $120 billion a month stimulus program was instrumental in sending the BTC price from below $4,000 in March 2020 to $69,000 in Nov 2021. And now that the liquidity threatens to go away, with lending to become costlier as the Fed prepares for three rate hikes next year, many fear that it would hurt investors’ appetite for risk assets like Bitcoin.
Bitcoin price briefly popped above $49,000 after the Fed FOMC meeting confirmed at least three interest rate hikes and some adjustments to the current market supporting practices in 2022. https://t.co/TpTX7tGmYL pic.twitter.com/lXw47icZmB
— Cointelegraph Markets (@CointelegraphMT) December 15, 2021
Mike Novogratz, chief executive officer of Galaxy Digital Holdings, admitted that Bitcoin might feel “pain ahead” but anticipated that its price would not fall anywhere beyond the $42,000-support.
“$42,000 is at a pretty important level, and low 40s should hold,” the crypto billionaire told Bloomberg TV in an interview Tuesday, adding:
“So much money is pouring into the space, it would make no sense that the crypto prices would go much below that. If you’re long, it feels painful, but it’s probably healthy.”
Bitcoin accumulation stronger among retail
In reality, unique wallets holding more than or equal to 1,000 BTC have been declining all across 2021, with data from Glassnode showing its number dropping to 2,147 from 2,475 since Feb. 9.
In contrast, the number of unique wallets holding at least 0.01 BTC (around $485 at current exchange rates) rose in 2021, from 8.46 million to 9.39 million year-to-date.
Meanwhile, addresses holding at least 0.1 BTC (~$4,855) surged from 3.12 million to 3.30 million in the same period, indicating that “fishes” played a key role in pumping the Bitcoin price from around $30,000 to as high as $69,000 this year.
One more piece of evidence showing that retail investors have been bullish on Bitcoin, came from addresses that hold at least 1 BTC.
Related: Analysts expect Bitcoin trend change after Fed lays out its 2022 roadmap
These wallets decreased in quantity in the first half of 2021 as the BTC market grappled with the China ban and other negative news, but started increasing the second half as El Salvador adopted Bitcoin as its legal tender.
The number of Bitcoin wallets with at least 1 BTC also kept rising during the BTC price correction from $69,000 to $42,333 in the November-December session, signaling accumulation. It reached a seven-month high on Wednesday just as Bitcoin underwent a rebound to $50,000 from its weekly low near $46,000.
On-chain analyst Willy Woo also spotted retail accumulation rising to levels seen after the March 2020 crash, which led to Bitcoin’s two-year-long bull run.
Additionally, Bitcoin’s momentum indicator that preceeded its price breakout to $69,000 earlier this year is also hinting at a potential BTC price breakout ahead.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
The Real Reason Federal Reserve Chair Powell Retired “Transitory”
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Data suggests traders view $46,000 as Bitcoin’s final line in the sand
Dec. 13 will likely be remembered as a “bloody Monday” after Bitcoin (BTC) price lost the $47,000 support, and altcoin prices dropped by as much as 25% within a matter of moments.
When the move occurred, analysts quickly reasoned that Bitcoin’s 8.5% correction was directly connected to the Federal Open Market Committee (FOMC) meeting which starts on Dec. 15.
Investors are afraid that the Federal Reserve will eventually start tapering, which simply put, is a reduction of the Federal Reserve’s bond repurchasing program. The logic is that a revision of the current monetary policy would negatively impact riskier assets. While there’s no way to ascertain such a hypothesis, Bitcoin had a 67% year-to-date gain until Dec. 12. Therefore, it makes sense for investors to pocket those profits ahead of market uncertainties and this could be connected to the current correction seen in BTC price.
Bitcoin price retraced 8.2% over the past week, but it also outperformed the broader altcoin market. That is in stark contrast to the last 50 days because the leading cryptocurrency’s market share (dominance) dropped from 47.5% to 42%. Investors could have simply fled to Bitcoin due to its relatively smaller risk than altcoins.
Tether’s discount bottomed at 4%
The OKEx Tether (USDT) premium or discount measures the difference between China-based peer-to-peer (P2P) trades and the official U.S. dollar currency. Figures above 100% indicate an excessive demand for cryptocurrency investing. On the other hand, a 5% discount usually indicates heavy selling activity.
The Tether indicator bottomed at 96% on Dec. 13, which is slightly bearish but not alarming for a 10% total cryptocurrency market capitalization drop. However, it has been over two months since this metric surpassed 100%, signaling a lack of excitement from China-based traders.
To further prove that the Dec. 13 price crash only slightly impacted investor sentiment, the total liquidations over the 24 hours was $400 million.
More importantly, only $300 million of long leverage contracts were forcefully terminated due to insufficient margin. This figure looks insignificant when compared to the Dec. 3 crash, when $2.1 billion of leveraged buyers had their positions closed.
There’s no excessive demand from Bitcoin bears, at the moment
To further prove that the crypto market structure was not strongly affected by the sharp price drop, traders should analyze the perpetual futures. These contracts have an embedded rate and usually charge a fee every eight hours to balance the exchange’s risk.
A positive funding rate indicates that longs (buyers) are demanding more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, and this causes the funding rate to turn negative.
Considering that most cryptocurrencies suffered considerable losses on Dec. 13, the overall market structure held nicely. Had there been excessive demand for shorts who were betting on a Bitcoin price drop below $46,000, the perpetual futures 8-hour funding would have gone below 0.05%.
Tether trading at a 4% discount in the China-based markets, $300 million in long contract liquidations and a neutral funding rate is not a sign of a bear market. Unless these fundamentals change significantly, there is no reason to call for $42,000 or lower Bitcoin prices.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
Cardano: ADA price eyes 30% rally with a potential ‘triple bottom’ setup
Cardano (ADA) may rally by nearly 30% in the coming days as it hints at forming a classic bullish reversal pattern.
Sharp ADA rebound underway
Dubbed “triple bottom,” the pattern typically occurs at the end of a downtrend and consists of three consecutive lows printed roughly atop the same level. Meaning, triple bottoms indicate sellers’ inability to break below a specific support level on three back-to-back attempts, which ultimately paves the way for buyers to take over.
In a perfect scenario, the return of buyers to the market allows the instrument to retrace sharply towards a higher level, called “neckline,” that connects the highs of the previous two rebounds. The move follows up with another breakout, this time taking the price higher by as much as the distance between the pattern’s bottom and neckline.
So far, the ADA price has been able to paint the triple bottom halfway, now rebounding after forming the third low, as shown in the chart below.
The point at which the ADA price reversed accompanied a rise in trading volume, suggesting that the rebound had enough backing from the buyers. Therefore, the Cardano token looks poised to at least pursue a run-up towards $1.40.
Moreover, if the price further breaks above the neckline level decisively, it would likely continue to rally until it hits $1.63 — as per the triple bottom scenario.
Accumulation area
The potential triple bottom scenario emerged after ADA’s price plunged by more than 60% from its record high of $3.16 achieved on Sept. 2 earlier this year. It also surfaced as the Cardano token became one of the worst performers quarter-to-date, dropping nearly 45.50% compared to its top rival Ether’s (ETH) 15% gains.
ADA’s multi-month selloff pushed its daily relative strength index (RSI), a momentum indicator, into oversold territory. In addition, Cardano token’s price drop also led it to what appears like a dependable “accumulation area,” as shown in the chart below.
Both RSI and the accumulation area also point to a buying scenario in the ADA market, thus supporting the triple bottom scenario on the four-hour chart.
Risks remain for ADA price
It is important to notice that ADA dropped by more than 5.50% in the past 24 hours, much in sync with other top crypto assets in the space, with Bitcoin (BTC) sinking by over 3% and Ether by almost 5% in the same period.
At the core of the crypto market’s uniformed decline was the Federal Reserve’s two-day policy meeting starting Tuesday. In the meetup, the U.S. central bank would likely decide to accelerate the tapering of its $120 billion a month asset purchasing program, one of the key catalysts behind the crypto and stock market rally since March 2020.
Other parts of the Fed meeting would see the officials discussing the prospects of rate increases next year from its current near-zero levels. Cheaper lending had also played an important role in pushing the Bitcoin and altcoin market prices higher across 2020 and 2021, including ADA.
Related: Bitcoin price dip may end Wednesday as Bitfinex bids hint at Fed ‘buy the news’ plans
As Fed officials initiate their policy meeting, the Cardano token would be testing $1.18 as its weekly support for a potential price rebound. The $1.18-level is the 0.618 Fib line of what appears to be an accurate Fibonacci retracement graph in predicting ADA’s support and resistance levels.
Should ADA fail to rebound and close below $1.18, its next Fib support may come at 0.786 Fib line near $0.674, around 42% below. Nonetheless, ADA/USD may also test $1 as psychological support for an early upside retracement, similar to its multiple rebounds between February and July 2021.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
3 reasons why Ethereum price can drop below $3K by the end of 2021
Ethereum’s native token Ether (ETH) reached an all-time high around $4,867 earlier in November, only to plunge by nearly 20% a month later on rising profit-taking sentiment.
And now, as the ETH price holds $4,000 as a key support level, risks of further selloffs are emerging in the form of multiple technical and fundamental indicators.
ETH price rising wedge
First, Ether appears to have been breaking out of “rising wedge,” a bearish reversal pattern that emerges when the price trends upward inside a range defined by two ascending — but converging — trendlines.
Simply put, as the Ether price nears the Wedge’s apex point, it risks breaking below the pattern’s lower trendline, a move that many technical chartists see as a cue for more losses ahead. In doing so, their profit target appears at a length equal to the maximum wedge height when measured from the breakout point.
As a result, Ether’s rising wedge downside target comes out to be near $2,800, also near its 50-week exponential moving average (50-week EMA).
Bearish divergence
The bearish outlook in the Ether market appears despite its ability to bear the massive selling pressures felt elsewhere in the cryptocurrency market in recent weeks.
For instance, Bitcoin (BTC), the leading crypto by market cap, fell by 30% almost a month after establishing its record high of $69,000 in early November, much higher than Ether’s decline in the same period. That prompted many analysts to call Ether a “hedge” against the Bitcoin price decline — also as ETH/BTC rallied to its best levels in more than three years.
But it does not take away the fact that Ether’s recent price rally has coincided with a decline in its weekly relative strength index (RSI), signaling a growing divergence between price and momentum.
Additionally, the recent ETH price pullback also had the RSI oscillator fall below 70, a classic sell indicator.
Fed “dot plot”
More downside cues for Ether come ahead of the Federal Reserve two-day policy meeting starting on Dec, 14 when the U.S. central bank will discuss how quickly it may need to taper its $120 billion a month asset purchasing program to gain enough flexibility for potential rate hikes next year.
Just last month, the Fed announced that it would scale back its bond-buying at the pace of $15 billion per month, suggesting that the stimulus would eventually cease by June 2022. Nonetheless, a string of recent market reports showing a tightening jobs market and persistently mounting inflationary pressures prompted the Fed officials to end tapering “perhaps a few months sooner.”
20 CenBanks hold meetings next week as inflation keeps rising w/final decisions for 2021 due at Fed, ECB, BoJ, BoE which together responsible for half of world econ. CenBank balance sheets have risen in lockstep to ATHs, but now there could be divergence. https://t.co/GgOLGCNbjR pic.twitter.com/mrrhwUVcet
— Holger Zschaepitz (@Schuldensuehner) December 12, 2021
Market anticipations also adjusted, with a Financial Times survey of 48 economists anticipating the stimulus to end by March 2022 and most respondents favoring a rate hike in the second quarter.
The period of loose monetary policies after March 2020 has been instrumental in pushing the ETH price high by over 3,330%. Therefore, the increasing likelihood of tapering can certainly put the brakes on the current rally, if not the bull market as a whole, according to some ana.
From there I expect a very aggressive approach from the Fed because they’ll recognize we are in a bubble and something extreme needs to be done.
Then we get our multi-year bear market.
— K A L E O (@CryptoKaleo) December 10, 2021
Markets anticipate the Fed will update its policy statement and summary of economic projections (SEP) this week. In doing so, more central bank officials would adjust the “dot plot” to favor an earlier-than-anticipated rate hike against rising inflation.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
Bitcoin price dips under $60K as Dollar Strength Index reaches 16-month highs
Bitcoin (BTC) logged its worst daily performance since September as BTC price slid by 10% to under $59,000 on Tuesday. On the other hand, the U.S. dollar jumped to its best level in sixteen months after spending across the American retail sector grew despite persistent Covid-19 fears and inflation concerns.
The BTC price established an intraday low of around $58,600 on Coinbase, only to retreat higher to reclaim $60,000 as its psychological support. Its move downside appeared as U.S. President Joe Biden signed the $550 billion infrastructure bill into law, including new tax-reporting requirements for cryptocurrency users.
Some used the news yesterday (Infrastructure Bill) to shake the tree and get some more cheap bags of #bitcoin for themselves.
— David Gokhshtein (@davidgokhshtein) November 16, 2021
Stronger retail data
Meanwhile, the dollar continued its prevailing bull run smoothly as sales at the U.S. retail stores rose by 1.7% in October versus 0.4% in the previous month. That provided another evidence — after an excellent Nonfarm Payrolls report last week — that the U.S. economy has been rebounding strongly from the Covid-19 lows.
As a result, investors raised their bids on the dollar, anticipating that the Federal Reserve would accelerate the tapering of its $120 billion a month asset purchase program, leading to earlier-than-expected rate hikes, which remained near zero since March 2020.
The U.S. dollar index (DXY), which measures the greenback’s performance against a basket of top foreign currencies, touched an intraday high of 95.821 on Nov. 16, its highest level since July 2020. Conversely, Bitcoin, which rallied strongly against a lower interest rate environment throughout 2020 and 2021, retreated.
More gains ahead for the dollar
Analysts anticipated the dollar to continue its growth higher in the coming months ahead, with market analyst Scott Melker predicting DXY to reach 97.50.
At the core of Melker’s bullish outlook was a “double bottom” setup.
In detail, Double Bottoms appear when the price forms two low points on a similar horizontal level to represent a potential bullish reversal. A bullish confirmation comes when the price breaks above a specific resistance level — a high point between the two bottoms — to target level at a length equal to the pattern’s maximum height.
So it appears, the U.S. dollar index has been breaking out of a similar Double Bottom setup, as shown in the chart below.
Bitcoin grapples with a mixed outlook
Bitcoin has more than doubled its prices in 2021 amid growing concerns about inflation. Nigel Green, chief executive of DeVere Group, noted that the cryptocurrency may keep on surging in value at least until the second quarter of 2022, citing the U.S. consumer price index’s (CPI) recent climb to its three-decade high.
“This latest data out of the U.S. will only compound global fears about inflation as price pressures run hot around the world,” he noted, adding:
“In this inflationary period, Bitcoin has outperformed gold, which has been almost universally hailed as the ultimate inflation hedge – until now.”
Vijay Ayyar, head of Asia Pacific with crypto exchange Luno in Singapore, called Bitcoin’s ongoing correction a “healthy pullback,” especially after its 175%-plus year-to-date price rally to $69,000.
“It would be unusual to keep moving up without corrections,” he noted.
On the other hand, Joel Kruger, a currency strategist at LMAX Group, said that a tighter Fed policy would start weighing on the broader market, hitting the riskiest assets the hardest, a reason why Bitcoin and the rest of the crypto market has been retreating against a rising dollar.
Related: Bitcoin will peak at $253K, Ethereum at $22K this cycle if 2016 halving bull run repeats
Martha Reyes, head of research at Bequant, a digital-asset firm, also called Bitcoin “a risk-on investment,” stating that people would want to raise cash from the most profitable assets in times of stress.
Bitcoin was trading at $60,625 at the time of writing.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
Bitcoin extends slide below $43K as Binance’s BTC stash grows to May-crash levels
Despite Bitcoin (BTC) dropping below $43,000 mark on Sept. 20, the outflow of BTC from exchanges has continued in a multi-month trend, particularly on Coinbase Pro.
Over the past month, the amount of Bitcoin held in Coinbase Pro’s vaults dropped by 28,843.87 BTC. Similarly, other crypto exchanges, including Kraken, OKEx, Bitfinex, and Huobi, also experienced a drop in their Bitcoin holdings, with the withdrawn amount totaling 30,236 BTC across the board.
On-chain analysts perceive falling Bitcoin reserves as a bullish signal.
That is primarily because most traders move their BTC assets to exchanges only when they prefer to trade them for other assets—be it fiat currencies or altcoins. As a result, the exchange balance serves as a metric to gauge traders’ sentiments for the underlying asset.
As a result, Coinbase Pro’s declining Bitcoin reserves hint at its traders’ intention to hold BTC instead of selling it. But, at the same time, its top rival Binance has been playing a spoilsport.
Binance BTC reserves buck the trend
However, data also shows that the Bitcoin balance in Binance wallets has risen to 29,717 BTC in the last 30 days, which is more the amount Coinbase Pro withdrew from its vaults.
As the world’s leading crypto exchange by volume, Binance enjoys a certain influence on the market due to its global outreach. The exchange’s rising Bitcoin balances suggest that its users could sell an increasing amount of BTC, the opposite of the trend seen on Coinbase.
The increase in Bitcoin reserves on Binance also reached levels that followed up with the market sell-offs during the second quarter of 2021. Notably, the Bitcoin balance on the exchange spiked from 199.7K BTC on April 20 to 347.59K BTC on June 26.
The same period saw BTC/USD drop from around $65,000 to below $30,000, including the notorious May 19 crash when Bitcoin plunged by more than 30%.
Bitcoin trading at $300 premium on Binance
The massive spike in Bitcoin reserves on Binance also coincided with premium BTC/USD bids on the exchange with the BTC spot price being almost $400 higher on Binance than on Coinbase.
The vast price difference created arbitrage trading opportunities, coinciding with Binance’s Bitcoin reserves adding 1,529 BTC in the previous 24 hours compared to Coinbase that processed withdrawals of 579 BTC.
Related: Does Evergrande’s $300B debt crisis pose systemic risk to the crypto industry?
As a reminder, exchanges still processed more than 30,000 BTC in withdrawals in the past 30 days, signaling that traders overall wanted to hold their crypto rather than sell it for other assets.
But given Binance’s trading volumes (~$24 billion) in the previous 24 hours were six times higher than Coinbase Pro (~$4.23 billion) at press time—as per data collected from CoinMarketCap—the probability of an interim Bitcoin price drop appeared high.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
Bitcoin price overcomes $50K, stocks slide after disappointing US jobs report
The S&P 500 slid to yesterday’s intraday highs while Bitcoin (BTC) climbed to its best levels in more than three months. The moves came as a key report on Friday showed that the United States economy added fewer jobs than anticipated, lowering the Federal Reserve’s likelihood to start unwinding its stimulus program this year.
The U.S. Bureau of Labor Statistics revealed that the nonfarm payrolls (NFP) grew by 235,000 in August against the expectations for 733,000 positions. Nevertheless, the unemployment rate inched lower to 5.2% from 5.4% in the previous month.
OUCH! US economy adds just 235,000 jobs vs 733k expected, slowest gain in 7mths amid Delta surge. At least prior mth revised higher to 1053k from 943k. The unemployment rate falls to 5.2% as expected. Average hourly earnings were above expectations, rose 0.6% MoM vs +0.3% exp. pic.twitter.com/gQJHLAb54Z
— Holger Zschaepitz (@Schuldensuehner) September 3, 2021
Delta FUD behind Bitcoin pump?
Hospitality and leisure sector saw no job gains in August, in contrast to its average increase of 350,000 positions per month over the previous six months. Meanwhile, the restaurant sector lost 42,000 jobs, signaling fears about the fast-spreading delta variant of Covid-19.
Bitcoin rose by 3.41% to $50,961 in anticipations that a slowdown in the U.S. jobs sector would prompt the Federal Reserve to limit its taper tantrum.
The world’s best-known cryptocurrency had struggled in the second quarter of 2021 amid a global economic rebound from the pandemic. It fell from around $65,000 to below $30,000 after facing additional headwinds from a full-fledged crypto ban in China and Elon Musk’s anti-Bitcoin tweets.
At the same time, the global economic recovery raised speculations that central banks would unwind their massive monetary support. In the U.S., Federal Reserve Chairman Jerome Powell said that they would begin tapering by the end of this year if the economy achieves “maximum employment.”
But delta variant kept denting hopes of a steady economic and labor market recovery. Moreover, Friday’s job data hinted that the US central bank would need to continue its $120 billion a month asset purchase program.
The outlook stressed the U.S. dollar lower and sent non-yielding hedging assets like Bitcoin and gold high.
“The cross-over above the $50,000 price mark has revealed two crucial discoveries for the digital currency,” said Petr Kozyakov, co-founder and CEO of the payment network Mercuryo.
“One is that the premier cryptocurrency still has the inherent features that attract investors and buyers, and secondly, the increased price valuation has not yet eliminated the volatility that surrounds the digital asset.”
Kozyakov anticipated that loose monetary policies, coupled with Bitcoin’s growth as a recognizable financial asset on Wall Street, would push its prices to $55,000 in the near term, and $70,000 in the long term.
Unemployment benefits expiring soon
The extremely weak NFP report came just days before the scheduled termination of federal unemployment benefits that the U.S. administration had put in place to cushion the economic damage caused by the pandemic.
Moreover, an additional aid that gives unemployed Americans $1,200 a month will expire on Sept 6. That would effectively remove aid to about 7.5 million people when delta cases are rising in parts of the U.S.
Goldman Sachs noted that unemployment benefits also kept Americans from applying for jobs throughout July. The banking giant forecasted Sep. 6 termination to raise nonfarm payrolls to 1.5 million by the end of 2021.
The next Federal Reserve meeting will take place mid-Sept and will expect to shed more light on their taper plans in light of a weaker NFP report.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
How Would Fed Tapering Affect The Bitcoin Market?
With the S&P 500 continuing to reach all-time highs almost daily, the talk of tapering by the Federal Reserve is rampant.
The below is from a recent edition of the Deep Dive, Bitcoin Magazine‘s premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.
S&P 500 Drawdowns From All-Time High
With the S&P 500 continuing to reach all-time highs seemingly almost daily, with the last 5% correction occurring 10 months ago, talk has begun to reemerge from Federal Reserve officials to start tapering asset purchases programs. Robert Kaplan, president of the Dallas Fed, is proving to be among the loudest voices. The following are all tweets yesterday from Walter Bloomberg:
Spread Between High Yield Corporate Debt And 10-Year U.S. Treasury
In the spirit of the recent taper talk, we wanted to republish our thoughts on a Fed taper that we originally published back on May 29 of this year.
“The monetary policy goals of the Federal Reserve are to foster economic conditions that achieve both stable prices and maximum sustainable employment.”
In the Federal Reserve’s mandate, there are two stated goals for its monetary policy:
- Stable prices
- Maximum employment
With these two stated goals, the Fed is implicitly telling the market that any taper talk is complete nonsense, and here is why:
The entire economic system is built upon credit, and to maintain full employment and stable prices (i.e., “2% inflation targeting”), credit cannot be allowed to contract.
Let’s dig into some recent trends in the real estate market for context:
Median prices for single family homes have increased 14.6% year over year, fueled by record low mortgage rates over the last 18 months.
