After the smattering of U.S. central bankers who set the Federal Reserve’s interest-rate benchmark met last week, the smattering issued a press release that outlines their new monetary policy (raising rates by 75 basis points). Then Powell, who leads the smattering, speaks at a press conference, giving introductory remarks before he answers questions from financial journalists.
In our modern era of information overload, the market tends to react to the press release and then to the introductory statement and then to the answers to the financial journalists’ questions.
So imagine my annoyance during last Wednesday’s November edition of “Fed Policy Makers Change Rates and Then Powell Talks About It.”
Just look at the S&P 500 (which tracks the performance of most of the U.S. stock market) and how it behaved during the afternoon’s proceedings: It went up with the press release, down with the introductory statement and then down some more amid the questions from the press.
Again: Imagine my annoyance. (Just picture a guy shaking his fist at a computer screen because of visceral market reactions due to another guy saying some stuff.)
This is my take as to why this happened. The market was looking for any signal of the “slowdown” of interest rate hikes Powell hinted at a few rate hikes ago, and it found that in the press release. But when Powell started talking, markets reinterpreted what they’d just heard, especially because of this comment:
“At some point, as I’ve said in the last two press conferences, it will become appropriate to slow the pace of increases, as we approach the level of interest rates that will be sufficiently restrictive to bring inflation down to our 2% goal. There is significant uncertainty around that level of interest rates. Even so, we still have some ways to go, and incoming data since our last meeting suggest that the ultimate level of interest rates will be higher than previously expected.”
He was then later asked about “lag effects” (aka the time between the Fed’s rate increases and its actual economic impact) and Powell dropped the bombshell about it being premature to talk about a rate-hike pause. The S&P 500 puked.
What’s more, the S&P 500 got whipped around even more than bitcoin (BTC) – you know, the famously volatile Magic Internet Money. The Fed press release came out at 2 p.m. ET. The S&P 500’s gain peaked at 0.7% about a half hour later, but it ended the day down 2.3%. Meanwhile, bitcoin peaked at a post-Fed press release gain of 1.3% and ended with a 1.5% loss.
Volatility has a specific definition, and two weeks is hardly statistically significant, but this marks the second week in a row when bitcoin’s relative stability showed the stock market who The Adult in the room was.
Bitcoin isn’t volatile anymore, is it high time we throw out all our models?
I’ve been waiting a long time to write this and actually mean it (from a markets perspective, at least), but honey badger really doesn’t care. The honey badger being an endearing term bitcoiners use to describe bitcoin.
In the last two weeks, we’ve seen the Fed signal a willingness to keep raising rates to get inflation down, a hot jobs report and general macroeconomic uncertainty. That pushed both the S&P 500 and the Nasdaq-100 (another U.S. stock market proxy) down. Meanwhile, bitcoin rose.
I know this could change easily overnight, but for the time being, it looks like bitcoin is shrugging off the uncertainty.
My colleague Glenn Williams Jr. put it best:
“The world turns but the asset often criticized for its volatility has not – or certainly not as much as leading equity indexes this year.”
My conclusion is one of two things: Either bitcoin has now truly arrived as a macro asset or value is meaningless again since dogecoin (DOGE), a cryptocurrency that was quite literally created as a joke, doubled in price in October.