Jun 22, 2022
Charts for episode can be found on BitcoinandMarkets.com/fed99
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Fed Watch is the macro podcast for bitcoiners. Each episode we discuss current events in macro from across the globe, with an emphasis on central banks and currencies.
In this episode, CK and I listen and react to highlights from this month’s two central bank press conferences, Federal Reserve Chairman Powell and ECB President Lagarde. Central banks are one of the most misunderstood institutions in our modern world. Many analysts simply tell you what the Fed or the ECB thinks and what they do to disrupt the global economy, but on our show, we like to give you primary source material from which you can start to form your own educated opinion.
We live stream most of our shows on the Bitcoin Magazine YouTube channel on Tuesdays at 3pm eastern. Mark your calendars!
Chairman Powell’s comments were highlighted by a few narratives. These are simply what they say they are doing, not our analysis.
The main metric guiding the Federal Reserve’s course of rate hikes is CPI and “inflation” expectations. There are several ways to measure this, the Fed uses consumer surveys. This is a critical distinction between surveys and market-derived expectations, because surveys will not distinguish sources of price increases where the market-derived measures will do that.
Below is the Fed’s survey of inflation expectations. You can see, the median prediction is above 8%.
However, the market-derived data, namely the 5 and 10-year Breakevens and the 5y-5y Forward, are showing inflation expectations around 2.5%. What accounts for this huge difference? It is because the market-derived data is measuring actual money printing, or in other words, actual inflation. The survey data on the other hand is measuring generic price increases which are much more highly affected by supply shocks; in this case, self-imposed supply shocks.
We also listen to a few clips of President Lagarde’s press conference. Here we get a flavor for the ECB’s formative narratives.
The ECB faces a different challenge than the Federal Reserve. The ECB must raise rates with some more indebted countries, already with anti-Euro parties growing, facing uneven effects, as we can see with credit spreads in Italy for example.
Powell’s speech https://youtu.be/IojU0hD3A_A
Lagarde and the ECB https://youtu.be/d_utpAxGMYo
That does it for this week. Thanks to the watchers and listeners. If you enjoy this content please SUBSCRIBE, REVIEW on iTunes, and SHARE!
Written by Ansel Lindner