Daily Update:

• Following a hawkish press conference in the December FOMC meeting (read our thoughts on that meeting here), Chair Powell’s statement on the path of monetary policy continued that hawkish bias yesterday evening. The FOMC voted unanimously to leave the FFR unchanged at 4.25-4.5% after 100bps of cuts since September 2024.

• Powell mentioned in his opening speech that given those cuts, the policy rate is now “significantly less restrictive”, such that Fed policymakers do not “need to be in a hurry to adjust” the policy stance. Instead, they are looking for further meaningful progress on inflation (beyond the two recent positive CPI prints), or “alternatively some weakness in the labour market” before making any rate adjustments. Current policy is “very well calibrated”, and Powell does not see either of the above. When asked specifically if a March rate cut is on the table, Powell reiterated that there is no need to be in “a hurry to adjust policy stance”, though the Fed will not need to wait until inflation falls to the 2% target before cutting again.  

• Regarding the uncertainty of fiscal policies, the Fed is very much in a wait and see mode: Powell highlighted there are too many unknown variables when it comes to tariffs for example, from what products tariffs will be applied on and how long they will be applied for, to which countries will be tariffed and whether they will retaliate.

• The final question of the Presser was regarding the risks of cryptocurrencies. Powell said “banks are perfectly able to serve crypto customers”, which is likely to be even more so the case following SAB 122. Chair Powell also said that the Fed is “not against innovation”. He ended his answer by saying it would be “helpful if there were a greater regulatory apparatus around crypto” something the new Trump administration is focused on via the recent ‘Strengthening American Leadership In Digital Financial Technology’ Executive Order.  

• Bitcoin initially fell from just under $103K when the FOMC issued the press release at 7pm UTC. However, once Chair Powell took to the podium, we saw a rally to $104.6K, before some gains were pared back. Currently, BTC is up 3% on the day, changing hands at $105K.

• That changing sentiment in spot prices is clear in derivatives markets too: the term structure for BTC futures implied yields inverted briefly earlier today, resulting in a now flat curve. This has coincided with a steepening in BTC’s implied vol term structure, with the IV at the front end declining to 47% briefly.

• The Bank of Canada cut its benchmark interest rate by 25bps to 3% whilst also revising its growth forecasts down, citing “major uncertainty” of the potential 25% tariffs from the U.S. According to models conducted by the BoC, Canada’s economy would fall into a recession given a 25% tariff and retaliatory trade war.

This Week’s Calendar:

Charts Of The Day: