原文标题：The Fed’s Rate Cut Trajectory Remains Intact, Boosting the Crypto Outlook  

Original author: Scott Garliss

Original source: https://www.coindesk.com/opinion

Compiled by: Mars Finance, Daisy

Fed’s rate-cutting trajectory remains intact, boosting crypto outlook

Scott Garliss said inflation trends are returning to normal levels before the pandemic, which provides policymakers with more room to adjust interest rates.

Last week’s inflation report had little impact on the Fed’s easing cycle.

In the past few weeks, the yield on the 10-year US Treasury bond has climbed rapidly from 3.6% to 4.1%. The main driver of this change is the asset rotation operation of quantitative fund managers. They have shifted from fixed income investments to the stock market. As bond prices fall, yields have risen sharply.

But that hasn't stopped stock market bears from trying to take advantage of the opportunity. They try to use every trick in the book to claim that stocks can't continue to rise, but they ignore the bigger picture.

The recent discussion has focused on why our central bank can't cut rates. A few weeks ago, the new Japanese government was bent on tightening policy, so we couldn't cut rates to keep our bonds attractive. Last week the view was that the economy was overheating due to job growth exceeding expectations, meaning that loose policy would fuel inflation.

The first was quickly dismissed as Japan's new prime minister said the economy could not afford a rate hike, while the second was rejected as domestic policymakers said September's job growth was not enough to reverse the overall slowdown in employment.

This week, the bears are out again. They claim that higher-than-expected CPI growth in September means that rate cuts are off the table. But as before, they are not looking at the bigger picture. Because if we look beyond short-term expectations, the long-term inflation trend is steadily downward. This means that our central bank will have plenty of room to cut rates aggressively next year, supporting a continued rally in risk assets like cryptocurrencies.

But don’t just take my word for it, let’s see what the data says.

The Bureau of Labor Statistics reported that the CPI rose 2.4% in September, slightly higher than the expected 2.3%. Although this was a disappointment to economists' forecasts, it was still a change in the right direction compared to the 2.5% increase in August.

In the chart above, you'll notice that yesterday's results marked the lowest CPI growth rate since February 2021. You can also see that the indicator is rapidly approaching pre-pandemic levels.

But let's dig a little deeper and look at the monthly growth trend on a quarterly basis.

As you can see in the chart above, price pressures seem to be showing a clear trend over the course of the year. From January to March, the CPI increased by an average of 0.6%. And in the April-June period, the price growth rate was 0.3%. In the past three months, the growth rate has stabilized at around 0.1%, which is clearly a continued slowdown.

Now, we want to review trends from past years so we can see if this year’s activity is different from previous ones.

Based on data from 2021, the monthly rate of inflation growth tends to slow throughout the year. As we move past the effects of the COVID stimulus, we can see that slowing trend accelerating.

Our chart shows that inflation growth is usually strongest in the first two quarters of the year. Then in the third and fourth quarters, the pace of growth slows almost to a standstill. In fact, there was no growth in the fourth quarter of 2022, and the CPI contracted at the end of last year. This means that inflation growth should slow further in the next three months.

But we want to see if economic trends are returning to normal. Because if so, that means the Fed can also return interest rates to more normal levels. So, let's look at how the pace of monthly growth has changed over the past few years relative to the pre-pandemic average.

Between 2021 and 2022, when inflation was surging, the average monthly increase was 0.6%. In other words, the CPI was growing at an annual rate of about 7.2%. But as interest rates soared, the monthly increase began to slow. In 2023, the average monthly increase was 0.3%, an annualized rate of 3.6%, while the average increase so far is 0.2%, an annualized rate of 2.4%. For pre-pandemic levels, I analyzed data from 2009 to 2019. It turns out that inflation was growing by about 0.15% per month.

Based on this data, it looks like inflation is trending back toward pre-pandemic norms. So I modeled what annualized growth would look like if this trend continued…

Depending on the outcome, CPI could fall back below the Fed’s 2% target as soon as February of next year. In other words, over the next five months, our central bank could be close to achieving one of its main goals since it began raising interest rates in March 2022.

The final thing we want to focus on is how much room the Fed has to cut rates. Based on what happened after the September data was released, the gap between the effective federal funds rate and annualized CPI growth is 250 basis points. This is one of the highest levels since 2000. More importantly, this tells us that the Fed can cut rates by the same amount before policy no longer has an impact on inflation.

So, as I said at the beginning, stock market bears are doing everything they can to try to drive stock prices down. But in the process, they hope that everyone will be so caught up in the noise that they will ignore the signal.

Right now, Wall Street is expecting borrowing costs to fall from 4.9% today to 3.4% next October. Based on the data we just saw, the Fed currently has more than enough room to achieve that goal and still retain another 100 basis points of buffer.

But why waste bullets if you don’t have to? Instead, our central banks can take their time and save their bullets for when they are really needed. Such changes should support stable economic growth and continued gains in risk assets like Bitcoin and Ethereum.