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This Wednesday’s FOMC meeting will mark the first interest rate cut from the Federal Reserve since April 2020. That rate cut took rates to near zero in a panicked attempt to stimulate growth during the COVID lockdowns.

Rates remained near zero until inflation (inevitably) spiked up in February of 2022.

Despite initial dismissals from Fed officials that the price spike was “transitory”, inflation proved incredibly problematic and the Fed was forced to embark on 18 months of interest rate hikes up to 5.25% by September 2023, blowing up a few regional banks in the process.

Rates remained at 5.25% for a full year and will finally start to come back down at tomorrow’s FOMC meeting.

Markets are unsure if rates will be lowered by a half point or a quarter point, but the direction of the move has been telegraphed for months, as markets now expect rates to be at least one full point lower by the end of the year.

Regardless of the size of this first cut, we think Powell will be very dovish in his prepared remarks and during the Q&A.

The dovish commentary could come from a change in the Fed’s quantitative tightening plans. The Fed could also dovishly revise their expectations for interest rate levels well into 2025.

Should the Fed grant the jumbo cut and/or include exceedingly dovish posturing and commentary, our long tech & long crypto portfolio construction should pay off to close the calendar year.

The newsletter’s portfolio is up 30% YTD and 67% over the last 12 months.

Our benchmark, the Nasdaq, is up 17% YTD and 28% over the last 12 months.

What Happens If the Fed Cuts 50bps… and what if it doesn’t?

The Fed is expected to cut rates on Wednesday, but the key question is by how much—25 or 50 basis points (bps)? For weeks, the narrative was that a 50bps cut could signal panic, but now markets seem to desire the bigger cut. Media chatter, including pieces from WSJ and Bloomberg, has raised the possibility of a "jumbo cut." As a result, bond yields dropped, and markets have moved their bets away from 25bps and towards a 50bps cut.

• Goldman Sachs: Leans toward 25bps, saying there’s no strong case for 50bps with inflation data still hawkish.

• Robert Kaplan, former president of the Dallas Federal Reserve, is advocating for a 50-basis-point (bps) interest rate cut at this week's Fed meeting. In an interview on CNBC’s Squawk Box, Kaplan emphasized that a larger cut would better prepare the Fed for the economic challenges heading into late 2024.

  • Kaplan's Rationale: He believes the Fed might be a meeting or two late in starting its rate cuts, and a more aggressive move would signal decisive action.

• Key Data: Recent labor market cooling and mixed inflation data add uncertainty.

• Market Pricing: The odds of a 50 bps cut surged to 63% today, up from 34% just one week ago.

WHY IT MATTERS:

The market has partially priced in 50bps—anything less could trigger a sell-off. The Fed’s mixed messaging and media leaks have created a paradox: if they cut only 25bps, we could see deleveraging and asset sell-offs.

• If the Fed cuts 50bps: Stocks, bonds, and gold would rally as markets get the stimulus they crave.

• If the Fed cuts 25bps: Markets may see it as a disappointment, leading to downside in risk assets. CTA and futures positions would unwind, driving volatility.

THE BIG PICTURE:

With elections around the corner, the Fed’s decision isn’t just about monetary policy—it’s also about politics. The central bank could face accusations of playing a political hand with a jumbo cut. But if they go too soft with just 25bps, markets may punish them.

Either way, there’s a huge gap between market expectations and the Fed’s dot plot for 2025, suggesting something’s got to give.

This week’s rate decision isn’t just about today—it’s setting the stage for whether the U.S. economy skates by without a recession, or if we’re headed for a storm.

Bottom Line: Buckle up. A 25bps cut might spook markets, while 50bps could trigger a violent move to the upside.

Keep an eye on gold and U.S. Treasuries as safe havens if the Fed fails to deliver. Watch big tech and crypto soar should the Fed comply and initiate the jumbo cut.

ZH

Trump-Backed World Liberty Financial Eyes a Simpler DeFi Experience

WHAT HAPPENED:

World Liberty Financial (WLF), a crypto project spearheaded by the Trump family, confirmed during a live stream that they’re rolling out a DeFi platform along with a governance token, WLFI. The platform, built on Ethereum, will focus on borrowing and lending services, offering users decentralized access to crypto liquidity.

The live stream was President Trump’s first interview since the latest attempt on his life. He provides his first-hand take on the event, his experience with NFTs, and anecdotes about how his three sons convinced him to embrace bitcoin and crypto.

• WLFI Token: The governance token will be non-transferable, giving holders the power to vote on protocol decisions without offering any economic return. The token will be available only to accredited investors under SEC Regulation D exemptions.

• Borrowing and Lending: Similar to popular DeFi protocols like Aave and Compound, users will be able to collateralize crypto assets (like Ethereum) and borrow against them. The platform is expected to focus on stablecoins, aiming to maintain U.S. dollar supremacy in the DeFi ecosystem.

PLATFORM DETAILS:

• Governance: Holders of WLFI tokens will have the ability to vote on decisions affecting the platform's future. Governance could include choosing which assets to support for lending, adjusting interest rates, or determining the platform's fees. 63% of WLFI tokens will be sold to the public, with 17% reserved for user rewards and 20% allocated to the founding team (including the Trumps).

• User-Friendly Focus: Eric Trump highlighted the challenges of using current DeFi platforms, mentioning his own struggles with looping Ethereum on Aave. The WLF platform aims to simplify DeFi, making it accessible for users who are not tech-savvy.

• Stablecoin-Driven: The platform will leverage stablecoins, pegged to the U.S. dollar, to provide liquidity in a familiar currency. This move supports their mission to keep the U.S. dollar central in global finance while participating in the decentralized revolution.

WHY IT MATTERS:

The Trump family’s entrance into crypto isn’t just about the token—it’s a push for mainstream DeFi adoption. By simplifying the experience and focusing on governance, World Liberty Financial is targeting a broader audience who may have found existing DeFi platforms too technical or intimidating.

• Regulation D Exemption: By only offering WLFI to accredited investors, the project is navigating the U.S.’s regulatory tightrope. This strategic move could protect the project from immediate SEC scrutiny, but it limits the audience to high-net-worth individuals, excluding retail investors.

• Political Connections: With Donald Trump Jr. positioning DeFi as the financial system the Founding Fathers envisioned, the project adds a political narrative to the already heated debates around decentralized finance. Trump’s 2024 election run complicates things further, with potential conflicts of interest arising from his involvement in the venture.

BIG PICTURE:

World Liberty Financial promises to make DeFi simpler and more accessible, while also pushing for U.S. dollar dominance in the crypto space via stablecoins.

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The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.ll