On the Margin Newsletter: What to make of the latest FOMC statement

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Welcome to the On the Margin Newsletter, brought to you by Ben Strack, Casey Wagner and Felix Jauvin. Here’s what you’ll find in today’s edition:

• We read between the lines of yesterday’s Fed meeting.
• As crypto gets political, an industry CEO expects Democrats to soon appeal to the industry.
• SEC Commissioner Mark Uyeda doubles down on his pro-crypto stance.

The biggest FOMC takeaways

What’s become a regular sequence occurred again yesterday during the FOMC meeting.

First we get the FOMC statement, which has very little new information. Some on-the-margin changes to the statement are below, but generally it was within expectations and offered no hint of forward guidance:

Many were looking for some guidance from Powell on whether the market’s pricing of a cut at the September meeting was warranted or not. When asked about that, Powell leaned on prepared remarks that could be summarized like this: As long as nothing weird happens between now and September, we will most likely cut.

This is, of course, paraphrasing and removes all the esoteric open-ended Fed talk we’re accustomed to. But when you boil it down, that’s the core of the idea: September is on, barring anything crazy.

Aside from guiding a September cut, we received a few other interesting insights:

• Powell compared today’s labor market to that of 2019. This is something I’ve been thinking about too as we approach what I’d call a “normalization cut” in September. This is similar to messaging Powell used in 2019 to cut around it being a “mid-cycle adjustment.”
• The Fed chair characterized the economy as neither slowing, nor overheating. Rather, he viewed it as in a somewhat solid equilibrium state.
• Powell made it clear the Fed board agrees we are confidently in restrictive territory and have been for a while. This is important in understanding what drives the Fed reaction function as many argue the neutral rate — a baseline for deriving restrictiveness — is secularly higher now.
• Finally, there was a stern emphasis on the dual mandate of the Fed being in much more solid balance. Responding to a question from the WSJ’s Nick Timiraos, Powell admitted he would be willing to ease to ensure the labor market doesn’t further loosen — even if it meant sacrificing a few basis points of inflation.

Overall, this was a somewhat neutral FOMC statement and a dovish press conference. The fact that Powell had prepared remarks ready to go to guide the market towards a September rate cut really says it all.

— Felix Jauvin

$18 million

The net inflows for the Grayscale Bitcoin Mini Trust (BTC) during its first day of trading Wednesday.

The cheapest-in-category spin-off of GBTC — with a 0.15% fee — launched yesterday with roughly $1.8 billion in assets.

Though a modest flow figure (considering $17.7 billion has entered US spot BTC funds since January), the Grayscale Bitcoin Mini Trust was one of just two such ETFs to notch inflows on the day. The other was BlackRock’s iShares Bitcoin Trust (IBIT), which reeled in $21 million.

Check out Blockworks’ Q&A with Grayscale managing director John Hoffman.

Galaxy’s Novogratz ‘hopeful’ VP Harris will be pro-crypto

We know where Trump seems to stand on crypto. At least publicly, and for now.

Though Kamala Harris — set to be his challenger in the November election — has not explicitly shared a stance on the topic, Galaxy Digital CEO Mike Novogratz expects she will soon.

“I am fairly certain, and hopeful, that nominee Harris … is going to soon make comments that show she’s from San Francisco — the land of innovation — and that she wants to be a pro-innovation, pro-crypto president,” Novogratz said during his company’s Thursday earnings call.

Republican politicians have historically been more outspoken than Democrats in supporting the crypto industry, especially this election cycle. There has been some bipartisan progress, though, with a number of Dems joining colleagues across the aisle in voting to approve a resolution to invalidate the SEC’s Staff Accounting Bulletin 121, as well as the FIT21 Act.

“If we get the Democrats to go where I think they’re going … now we’ve got both sides, and we can be less worried about Washington and more worried about prosecuting our business,” Novogratz said.

Outside of politics, the macro backdrop appears set to help BTC and crypto more broadly, the executive argued.

The Federal Reserve opted to hold interest rates steady on Wednesday, though the overwhelming expectation is for it to cut rates in September. Lower interest rates have generally been good for “risk-on” assets like BTC.

There’s also the whole national debt situation. Despite it recently surpassing $35 trillion, Novogratz pointed out the lack of talk by Harris or Trump to reduce spending and cut the deficit.

“Until that paradigm shifts — and it’s hard to see it shifting — bitcoin as a store of value and bitcoin as digital gold is going to have an amazing appeal to investors around the world,” Novogratz said.

— Ben Strack

SEC’s Uyeda says US needs to step it up

SEC Commissioner Mark Uyeda doubled down on his crypto stance this week, telling the crowd at a Capitol Account event in DC: “We are far, far behind the curve on crypto.”

The current approach is too disjointed to allow for industry participants to succeed, Uyeda said. Even if token issuers were able to “come in and register” as securities, he added, they would face roadblocks. That’s because non-brokers, which most crypto exchanges are classified as today, cannot facilitate trading.

The comments shouldn’t come as a surprise, as Uyeda has consistently dissented from his colleagues and their approach to regulating the industry. Last month, he expressed frustration with President Joe Biden’s veto of Joint Resolution 109, which sought to overturn the SEC’s SAB 121 guidance.

“Issuing SAB 121 by regulatory edict rather than rulemaking under the Administrative Procedure Act effectively avoids judicial review, which undercuts our system of checks and balances against an overreaching administrative state,” Uyeda said. “The veto of H.J. Res. 109 was unfortunate. SAB 121 ought to be withdrawn.”

Uyeda and fellow crypto-friendly Commissioner Hester Peirce find themselves in an interesting position ahead of the 2024 presidential election.

Former President Donald Trump has promised, if elected, to “fire” SEC Chair Gary Gensler “on day one.” That is a vow current laws would likely prohibit him from fulfilling. What Trump could do, according to legal experts, is replace Gensler with a current commissioner — leaving him in the agency but stripping him of his leadership role.

But, knowing Trump, I wouldn’t be surprised if he tries to test the limits of his executive power should he win and fire Gensler outright. Of course, this is all hypothetical for now.

— Casey Wagner

Bulletin Board

• After managing to stay in the green for a few hours after yesterday’s FOMC meeting, bitcoin dipped overnight to below $65,000. The crypto asset was trading at roughly $62,275 at 2 pm ET — down close to 5% from 24 hours prior.
• Prediction markets are all the rage, according to Binance’s new H1 report. Total value locked on prediction market platforms is up more than 200% year to date, the research shows.
• The On the Margin team sends our well wishes to WSJ reporter Evan Gershkovich and his family. Evan, who has been imprisoned in Russia for over a year, was freed Thursday as part of an elaborate East-West prisoner swap. Welcome home, Evan!

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