What Stagflation? Bullard being Bullard, bitcoin rallies

The Federal Reserve should start raising interest rates next year, a top Fed official said on Monday, arguing that many years of near-zero rates will do little to return economic output to pre-recession levels and risks causing “disaster.”

The Federal Reserve has been buying bonds worth $120 billion a month ever since financial markets crashed in March 2020 on fears of coronavirus-induced recession. The unprecedented stimulus triggered risk-taking across all corners of the global financial market, including bitcoin. The leading cryptocurrency charted a sixfold rally to over $60,000 from October 2020 to April 2021.

Equity traders are looking at surging global bond yields and are saying, “What, me worry？” The global bond market selloff is not easing at all and that should raise some red flags. Mad Magazines Alfred E. Neuman is what many stock traders are starting to look like when they buy every dip. Fed policy is about to become restrictive and commodity market tightness will still remain even if there is a quick resolution to the crisis in Ukraine. The bar is set high for the NATO summit to produce some coordinated effort that could bring us closer to an end to this war.

It seems whatever economic weakness that is starting to arise is being shrugged off as hope grows that Russia has lost momentum in the war in Ukraine. Russian troops are not progressing deeper into Ukraine and Russia‘s oligarchs and billionaires may find the upcoming round of sanctions from the US and EU to pose a great risk for their wealth. The impact from this war is anyone’s guess, but what we do know is that the longer it lasts, the greater the stagflation risk will be for the global economy.

More from the Fed

Fed‘s Bullard reiterated that the Fed needs to move aggressively to get to a neutral rate. He added that they can’t wait for geopolitical tensions to ease and that they should get going on the balance sheet runoff. After yesterday‘s hawkish encore performance by Fed Chair Powell and another round of Fed’s Bullard, it looks like Wall Street is mostly convinced that the Fed will raise rates by a half point and announce the balance sheet runoff at the next policy meeting in May. Normally Bullards expectations for Fed policy is the most aggressive, but it seems he may be spot on for the May meeting.

Bitcoin

Bitcoin is a risky asset and is enjoying the green across Wall Street. Risk appetite is here as economic/military pressure grows on Russia, which raises prospects this wont be a long war, Nike gave a strong outlook, and as surging Treasury yields have yet to deter investor appetite for risk.

Crypto headlines were limited but did include ECB‘s Panetta comment that said they need to be mindful of increased threat of cyberattacks and that crypto assets must not become a sanctions loophole. Bitcoin is once again nearing the upper boundaries of its USD 37,000 to USD 45,000 zone, but still doesn’t have a clear catalyst to break it.