Central bankers expressly acknowledge that they are confused.

Take a look at this news published by Bloomberg yesterday. Dallas Fed's Lorie Logan says that despite the rise in interest rates and their high levels, she considers them to be less restrictive than initially thought.

Why? You know that when a central banker says they are data-dependent, what it really means is that they do not trust their macroeconomic model. This means that they do not know the equilibrium interest rate, the natural interest rate. Without knowing the natural interest rate of an economy, monetary policy cannot be conducted.

Why are central bankers so confused? What are the economic consequences of this? Very simple. You know that central bankers implement monetary policy, raise interest rates, and adjust their balance sheets. What we are finding is that the service sector, when you raise the interest rate, is very insensitive to interest rate hikes, while the goods sector is very sensitive.

Of course, in the 1950s, you would raise interest rates, and since the goods sector represented practically 75% of the economy and was sensitive to interest rate hikes, you could slow economic growth. Nowadays, this is not the case.

Yesterday the first revision of the initial estimate of U.S. GDP growth for the first quarter of 2024 was published. What did we see? The economy grew at a low rate, relatively low, the lowest since 2022. Why? Let's make the same distinction: we find that the service sector rises, but the goods sector contracts. This is a consequence of the interest rate hikes. In the end, we had positive growth for a very simple reason: the growth of the service sector offset the decline of the goods sector.

Do you see that this is the key behind the problems central bankers face when defining their monetary policy? How does this affect $BTC ? Well, greater uncertainty in monetary policy could lead more investors to seek refuge in decentralized assets like cryptocurrencies. 😉

That's all for today, have a great day.