Yes, you read it right. The growing scrap of fresh federal reserve -cuts makes me uneasy. If I was a trader today, I would see price dips under short -term moving average carefully and stiffening for what could unfold in a larger sale.
But before I dive into why, let’s rewind to last Friday.
Powell opened the door to a September frequency cutting
Fed -President Jerome Powell seemed to support bold rate cuts during his speech on Friday’s Jackson Hole. According to Raboresearch’s Global Economics and Markets Team, the Key Frase in Powell’s speech was: “With politics in restrictive territory, the baseline prospects and the changing balance between risks can justify adjusting our political attitude.”
Powell even acknowledged that “downward risks of employment are rising,” leaving the door open to rate cuts in September – though without any obligation. These comments ratcheted up fat rate cut bets that sent markets, including Bitcoin and Ether, sharply higher.
These expected cuts arrive in the midst of record high fiscal expenses, record assessments in shares and crypto, a record M2-money not only in the United States, but all over the world and almost absent volatility across assets. This cocktail raises the question: How much more will cheaper borrow costs really move the needle?
Newsletter Service Londoncryptoclub’s founders offer this perspective: “Step -by -step interest rate reductions will have an impact on the markets, but there are much greater drivers than fat right now running this bull market. We have global monetary easing and rising stimulus, with global M2 on a tear. Fiscal Police Police.
In other words, the Treasury has been front -loading debt issues for short maturities, rising demand and supply of short -term securities, which helps keep short -term interest rates low. This strategy corresponds to a form of “Treasury Quantitative Easing”, where instead of bond -purchasing bonds directly for the injection of liquidity supports the Treasury’s debt -issuing pattern with low -yield in short duration debt.
But the question still lingers – how much stimulus is too much?
Juiced to Hilt: The US Economy on Steroids
I can’t help but see the US economy – and many developed economies – as professional bodybuilders relentless to pump more steroids into their systems to improve their muscles.
Economists have drawn this analogy repeatedly: tax expenses (Government expenses) and monetary policies (an increase in central bank’s assets) are the anabolic steroids in macroeconomics – emergency measures to breathe life back into the economy. They collect the economy artificially, but come with long -lasting, dangerous side effects.
Jim Bianco, President of Bianco Research, called the speed cuts a steroid shot to the system. JPMorgan’s David Kelly described the V-shaped recovery after the 2020 covide accident as “a steroid kind of improvement” that will inevitably slow when fiscal steroids wear out.
But the government never stopped injecting these steroids. According to the Congress Budget Office (Cbo) and Peter G. Peterson Foundation, a fiscal think tank, fiscal expenditure as a percentage of GDP has been higher than pre-pandemic levels around 23-25%, with forecasts showing persistent increased totals in the coming years.
Some call this time-era fiscal policy of steroids, continued with Gusto into the Trump administration, where massive tax cuts planned under the one big, beautiful bill are expected to pile trillion more on the deficit.
In short: Uncle Sam has never really come out of the gear. He paused monetary steroids briefly in 2022-23, but cranked fiscal steroids way up-and so to an Olympia athlete that swapped testosterone for high-powered trenbolone.
And now? Fed is ready to add testosterone back to the mixture with speed cuts.
Approaching steroid resistance?
Continuous use of steroids has consequences. In medicine and bodybuilding, sustained steroid use eventually leads to resistance is a saturation point, in addition to which the muscles stop responding to ever-increasing steroid doses, while side effects are interconnected.
The body’s hormonal regulatory systems are adjusted by down -regulating androgen receptors or changing hormone metabolism. This reduces the anabolic effects despite higher steroid doses. There have been cases of unabated use of steroids leading to organ defects and deaths.
The biological feedback mechanisms that cause steroid resistance have a clear parallel in economy: Unmitted use of monetary and/or fiscal stimulus or a combination of boats producing diminishing returns, which means that the law of diminishing marginal utility settings has been reached and eventually reaches a saturation where only side effects are prevalent while positive is zero. The muscle building effects-the economic growth plateau, but the side effects-from-inflated asset bubbles to runaway debt can be dangerous.
And that is precisely the potential risk of the US economy from the sustained stimulus measures. Unlike disciplined athletes who cycle steroids to maintain efficiency and health, the US economy has been on some steroid for five gracious years – never a break, never a reset.
When does the marginal effectiveness become negative? When does the side effects outweigh any benefit? No one knows.
But the scrap around the fed interest sections in a landscape where fiscal stimulus flows freely, and asset prices are already in lifetime, feel like pushing an already overworked bodybuilder with a synthetic cocktail that risks more damage than help.
Therefore, the trader in me is nervous – and concerned that financial steroids could steadily lose their stamp, leading to a mortality rate.
Omkar Godbole is a co-administrative editor and analyst for Coindesk. Opinions expressed here are his own and not financial advice.
