Bitcoin and Stocks Rise on Fed Pivot Rumors

Bitcoin has recovered above $19,000 again after a brief dip to $18,700 while stocks are up about 1.5% after opening somewhat down 0.3%.

The chief reason appears to be a new report by Nick Timiraos, whom ZeroHedge calls “Fed’s mouthpiece.”

He says effectively that another 0.75% hike is pretty much guaranteed at this point on November the second, but afterwards Fed officials are “likely to debate whether and how to signal plans to approve a smaller increase in December.” Timiraos says:

“Some officials have begun signaling their desire both to slow down the pace of increases soon and to stop raising rates early next year to see how their moves this year are slowing the economy.

They want to reduce the risk of causing an unnecessarily sharp slowdown. Others have said it is too soon for those discussions because high inflation is proving to be more persistent and broad.”

Markets initially expected this debate for the November hike, but the OPEC+ decision to cut production by two million barrels ended that speculation.

Oil is still edging slightly up in a sidewayish manner, but natural gas has fallen below $5 for the first time since March.

This is a huge crash due to the gas situation stabilizing in Europe, which should significantly lower inflation by perhaps as much as 5%.

This unexpected and sudden change should give Fed pause even for November, but the semi-official stance is that is not going to happen, with the question instead being:

“First, do they raise rates by a smaller half-point increment in December? And if so, how do they explain to the public that they aren’t backing down in their fight to prevent inflation from becoming entrenched?”

The better question is why on earth would they hike further by a half point, and why are they debating that matter two months in advance when they’re meant to look at the data and be nimble.

The answer probably being that banks have made $100 billion in profits from interest rate rises, and that’s in just one quarter, and since banks are Fed’s shareholders, they want to keep those profits or even increase them.

Because where inflation is concerned that’s on a downwards trend and the fall in gas prices means everyone expects it to fall further.

Suggesting that sooner or later we might need intervention by the elected to nuance Fed as these interest rates are entering into unsustainable territory even at current levels, let alone 4.5% in December.

The best way to convince the public they won’t just cut interest rates soon therefore, might be to half point increase in November, 0.25% in December, and then pause to see.

Rather than crisis hike still when there is no longer quite a crisis, and half point hike in December when interest rates are already too high, which might lead everyone to think a recession is coming and therefore they might cut.

There’s also the question of just how much Fed’s chair Jerome Powell is doing Republican’s bidding by hiking and hiking when analysts are reaching a consensus that Fed just can’t go any further.

“I would say that the Fed now is looking at easing up on the magnitude or slowing its rate hikes, which underscores its price stability campaign,” said Joe Brusuelas, chief economist at RSM, a U.S.-based consulting firm.