📉 Rugged?: Bitcoin And Gold Lower As Powell's Words Sink Markets

Good Morning!

New Zealand's economy has plunged into its worst non-pandemic recession since 1991, with a shocking 1% GDP drop that's forcing major rethinking of interest rates. Q3 GDP plummeted 1% – five times worse than expected – while Q2 was revised down to -1.1%, officially marking a recession. Manufacturing, construction, and household spending all took major hits. This nosedive sent the NZ dollar tumbling. Markets are now betting big on aggressive rate cuts, with a 70% chance of a hefty 50-basis-point slice in February. Oh and the Fed may have rugged us yesterday!

In today’s email:

• FedWatch: Powell delivers a hawkish outlook

• Bitcoin: Lower on Powell’s hawkish comments

• El Salvador: Limiting Bitcoin activities thanks to IMF 

• Gold: Retains strong support around $2600

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THE BIG IDEA

Fed delivers a hawkish surprise with its latest rate cut, signaling a more cautious approach to future reductions amid inflation concerns and Trump's looming presidency

The Fed just dropped a plot twist that sent markets spinning. While they delivered the expected quarter-point cut to 4.25%-4.50%, Fed Chair Powell's surprisingly hawkish tone had Wall Street doing a double-take. The real shocker? They're now forecasting only two rate cuts for 2025 – half of what they projected just three months ago.

Here's where it gets spicy: The Fed's inflation crystal ball is showing some storm clouds. They're now expecting core PCE inflation to stick around 2.5% through 2025, significantly above their 2% target. Blame it partly on Trump's upcoming presidency – his proposed cocktail of higher tariffs, tax cuts, and stricter immigration policies has the Fed's economists burning the midnight oil, recalculating their forecasts.

Speaking of surprises, Cleveland Fed's Beth Hammack caused a stir by voting against the rate cut entirely

But it's Powell's newfound caution that really turned heads. "We're in a new phase," he warned, suggesting future cuts will depend heavily on inflation's behavior. The markets got the message loud and clear, with stocks taking a nosedive and bond yields jumping.

The plot thickens when you consider the political angle. These projections could throw a wrench in Trump's campaign promises. Higher rates mean pricier mortgages, and that stubborn inflation isn't exactly helping his pledge to lower prices. Meanwhile, the Fed's staff is gaming out various scenarios for 2025, though Powell admits it's like solving a puzzle with missing pieces – they can't predict which countries might face tariffs or potential retaliation.

Bottom line: The Fed's putting the brakes on the rate-cut party, and Wall Street's already adjusting its expectations. What was priced as multiple cuts in 2025 has now shrunk to just one 25-basis-point reduction in market forecasts.

MARKETS AT A GLANCE

TOP NEWS

Wharton's Jeremy Siegel views the market's reaction to Fed's cautious stance as a necessary reality check after recent overoptimism

Yesterday's stock market tumble? Actually a good thing, says Wharton's Jeremy Siegel. The markets had been partying like it's 1999, pricing in aggressive rate cuts that weren't realistic. While some fear Trump's potential tariffs could spike inflation, Siegel's betting he'll tread carefully to avoid spooking Wall Street. The Fed's new pause phase suggests we're in for a wild ride in 2025.

Bank of Japan maintains status quo on rates but hints at 2025 tightening amid Trump policy uncertainties

The BOJ's keeping its powder dry at 0.25%, with an 8-1 vote signaling cautious optimism. Governor Ueda's playing it cool, suggesting more rate hikes are coming but wants clearer signals on wages and Trump's economic playbook first. Japan's central bank's watching everything from local wage talks to potential global trade shakeups before making its next move.

Oil prices dip as strong dollar follows Fed's hawkish rate cut outlook

Crude's taking a hit as the Fed's conservative rate cut forecast sends the dollar soaring to two-year highs. Brent's hovering near $73 while WTI's around $70. Despite four weeks of falling US inventories, oil's stuck in a rut since October – caught between weak Chinese demand and rising non-OPEC+ output, with Trump's potential Iran policies adding spice to the mix.

CRYPTO

Bitcoin briefly plummeted below $100K, triggering massive liquidations after Powell's comments on Trump's BTC reserve plans

The crypto market just hit a speed bump, with BTC briefly dipping under $100K and wiping out $700M in leveraged positions. The catalyst? Fed Chair Powell throwing cold water on Trump's Bitcoin strategic reserve plans, saying the Fed can't legally hold BTC. XRP and DOGE traders got particularly burned, with an unusual $70M in liquidations. Some analysts say this could mark a local top.

El Salvador to restrict Bitcoin activities as part of $1.4 billion IMF deal

El Salvador has agreed to limit public-sector Bitcoin transactions and phase out its Chivo wallet in exchange for a $1.4 billion loan from the IMF under a 40-month Extended Fund Facility. The deal, which also ensures taxes are paid exclusively in U.S. dollars, aims to address fiscal challenges and reduce risks associated with the country's Bitcoin policies, contingent on further reforms.

Deutsche Bank develops Ethereum layer-2 blockchain to address compliance issues in TradFi

Through "Project Dama 2," Deutsche Bank aims to leverage Ethereum's blockchain capabilities while mitigating compliance risks, such as dealing with sanctioned entities. The project, utilizing zero-knowledge proof technology, offers enhanced privacy and efficiency for institutional users and forms part of Singapore's Project Guardian initiative to integrate blockchain in asset servicing and tokenization solutions.

Surprising Binance survey reveals memecoins outpace Bitcoin in holder numbers, with AI tokens and memes tipped as 2025's hottest crypto sectors

A mind-bending stat just dropped from Binance's latest survey: 16% of crypto holders are riding the memecoin wave, edging out Bitcoin's 14.44%. While BTC's $2 trillion market cap dwarfs the memecoin sector's $117 billion, the survey's 27,000 respondents are betting big on AI tokens and memes driving 2025's growth. Talk about a plot twist in crypto's evolution.

GOLD

Gold prices dip after "hawkish" Fed rate cut; February gold down $24.70 to $2,638.10

Gold fell sharply following an anticipated 0.25% Fed rate cut, as the central bank signaled fewer rate cuts in 2025 and raised inflation forecasts. Despite retaining an overall technical uptrend, gold nears critical support at $2,600. Market focus shifts to Fed Chair Powell's comments amid a strengthening dollar and higher Treasury yields, which have pressured precious metals.

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