In a publish on X on October 29, Quinn Thompson, CIO of Lekker Capital, argued that Jerome Powell’s post-FOMC messaging was much less about macro uncertainty and extra about strain ways aimed on the political equipment — with direct penalties for crypto liquidity.
Powell’s FOMC Feedback Decoded
Thompson wrote: “Powell seemed to be taking part in political video games / posturing / CYA across the December verbiage, presumably to speak to the admin to get the federal government reopened. It nearly felt like a menace that if no knowledge (on account of continued authorities shutdown), then there gained’t be a December minimize and the market was briefly thrown off by that uncertainty.” He known as out how irregular it was to listen to Powell remark this instantly on market expectations: “The quick response made sense given it’s fairly irregular to listen to Powell touch upon market pricing so particularly as he at all times refrains from doing so and makes a degree to say he won’t touch upon market pricing.”
That’s the core of Thompson’s learn. Powell simply broke his personal behavior. Powell tends to reject any framing that means the Fed is validating market ahead pricing. This time, after the Federal Reserve minimize its coverage price by 25 foundation factors to a goal vary of three.75%–4.00%, Powell mentioned explicitly that “an additional discount within the coverage price on the December assembly shouldn’t be a foregone conclusion — removed from it.”
He underlined that there are “strongly totally different views” contained in the Committee in regards to the velocity and depth of additional easing. Markets instantly repriced. Treasury yields moved increased and the chance of a December minimize fell sharply from close to certainty to one thing nearer to a coin flip, and threat property reacted accordingly. That features crypto: bitcoin and large-cap crypto property initially traded decrease alongside equities because the market learn the remark as a hawkish shock moderately than as positioning.
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Thompson’s view is that this was not about signaling a hawkish flip. It was about signaling conditionality. He frames Powell’s remarks as a message to the White Home and Congress: reopen the federal government, restore financial knowledge movement, and the Fed has cowl to chop once more in December; hold the shutdown in place and deny the Fed official knowledge, and Powell can say, on report, that he can not justify additional lodging. Powell himself emphasised that the central financial institution has been working “within the absence of key authorities knowledge” as a result of the shutdown that started on October 1 has blocked regular labor, inflation, and exercise reporting. Thompson characterizes that stance as an implicit warning shot.
In his phrases, “What you infer from that’s as much as you, however moreover I imagine the market might have been shocked by what I imagine to be an incorrect Fed response perform to the federal government shutdown. There isn’t any situation wherein the economic system is stronger due to the shutdown and if they’re highlighting continued draw back labor market dangers, there isn’t an amazing case to be made to veer from their September dot plot path.”For crypto, the subtext is essential: Thompson is saying Powell’s feedback weren’t a sign to tighten monetary circumstances into year-end. They had been leverage in a political negotiation, not a coverage ceiling on liquidity.
That time is operational, not rhetorical. Thompson is saying the Fed’s said logic doesn’t truly line up with what the Fed itself claims to be anxious about. Powell’s justification for the October 29 minimize leaned closely on labor market softening and draw back employment threat. The official FOMC assertion pointed to a “shift within the stability of dangers” towards weaker employment, famous that job features have slowed, and acknowledged that unemployment has edged increased.
Powell additionally mentioned inflation remains to be above goal however now not accelerating the way in which it was earlier within the yr, which is why some members favored quicker easing. That blend — weakening labor, cooling inflation, coverage cuts — has traditionally been constructive for crypto as a result of it factors to simpler greenback liquidity and a decrease value of capital with out outright disaster.
On the stability sheet, Thompson highlights one thing that’s already documented in Fed and press statements however has not but absolutely repriced throughout threat: “Only a week or two in the past the market was not anticipating QT to finish this quickly and right this moment Powell went as far as to debate the subsequent step on this course of being a return to stability sheet development. These developments are definitively liquidity optimistic, regardless that the MBS reinvestment and future purchases will likely be all or predominantly payments.”
What This Means For Crypto
In plain phrases, the Fed didn’t simply minimize charges by 25 bps. It additionally mentioned it’ll cease quantitative tightening on December 1. Meaning the Fed will now not permit its Treasury and mortgage holdings to roll off passively. As a substitute, it’ll reinvest maturing Treasuries again into Treasuries and redirect principal paydowns from its mortgage-backed securities portfolio into Treasury payments.
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For crypto, that is the road that issues. When the Fed stops shrinking its stability sheet and begins recycling again into payments, it’s successfully injecting incremental greenback liquidity into the system, even when it refuses to name it QE. That liquidity has traditionally leaked into the components of the market most delicate to extra money and period shortage — tech, excessive beta credit score, and crypto. Thompson is principally saying that beneath the floor of Powell’s cautious language, the Fed simply signaled the beginning of the subsequent crypto liquidity regime.
This can be a vital liquidity inflection that’s simple to overlook if the one headline you take up is “December minimize not assured.” Ending QT this early was not a consensus two weeks in the past. That is additionally why Thompson rejects the concept that Powell’s tone was structurally bearish for threat.
He writes, “All in all I feel the December minimize remains to be fairly doubtless.” He then lays out the macro sequence he expects to see as soon as the shutdown ends: “In the end I feel they’ll reopen the federal government within the subsequent few weeks so there will likely be knowledge and it’s prone to present inflation falling for the subsequent few months and labor market proceed its weakening path, and Trump is making offers that doubtless carry tariffs down which additionally earns him brownie factors with the FOMC.” The message for crypto buyers is that when knowledge resumes, it’ll justify continued easing, not block it.
The final a part of Thompson’s publish strikes from mechanics to governance. He factors instantly at Powell’s expiring authority. “Powell’s time period as Chair ends in 6 months and his successor will likely be identified even sooner, making a shadow Fed chair scenario. It stays clear to everybody and the market that the brand new chair will likely be pleasant in direction of and assist effectuate the admin’s agenda. Given all the above, it’s tough for me to color a threat asset bear case primarily based upon liquidity dynamics as all indicators level to continued massaging to assist markets.” That’s the crypto punchline.
Thompson is arguing that the institutional bias of the Fed, going into the succession window, is towards sustaining and managing liquidity circumstances so markets don’t crack. If that bias holds, it’s inherently crypto-bullish, as a result of it implies a coverage ground beneath greenback liquidity on the precise second the Fed is already getting ready to halt stability sheet runoff and re-expand through payments.
At press time, the entire crypto market cap stood at $3.73 trillion.
Featured picture created with DALL.E, chart from TradingView.com
