TheBRRR’s Thoughts

GM.

The Federal Open Markets Committee (FOMC, aka Jay Powell and his posse) decided to leave interest rates unchanged today, as expected.

Market reaction has been clearly to the upside with a 1% climb in equity markets, a bump higher for crypto assets, and a drop for the dollar.

There’s nothing in the released statement or Jay Powell’s press conference that alters our bullish bias.

Here are our key takeaways:

-Median Fed official still sees 3 cuts this year
-Median Fed official sees long-run inflation at around 2.7% (vs 2.6% previously)
-Odds of a June rate cut immediately rose from 55% to 71%

The mild bump higher in inflation expectations indicates the Fed is actually OK with mildly higher inflation in order to maintain a dovish policy.

There’s also some chatter that the Fed won’t start cutting interest rates too close to the November election to avoid the perception of election interference, so if they’ll likely start cutting sooner (summer) rather than later (fall/winter).

Elsewhere we’re highlighting a story about BlackRock. In an announcement they revealed they’re launching an on-chain investment fund - clear evidence that they’re committed to experimenting with blockchain technology.

The giant asset manager has an application submitted to launch an Ethereum ETF, which could launching in the coming months as the SEC grapples with a key May deadline.

Fed Keeps Rates Unchanged, Median Voter Still Sees Three 2024 Cuts

WHAT HAPPENED:

• Steady Rates: As anticipated, the Federal Reserve kept interest rates unchanged in its latest meeting, maintaining the benchmark rate within the 5.25-5.5% range. The accompanying statement saw minimal adjustments, reflecting a consistent stance on monetary policy.

• Dot Plot Insights: While the 2024 median dot remained at three cuts, subsequent years indicated fewer rate reductions. Notably, one voter's shift could have altered the 2024 outlook from 75bps to 50bps in cuts, highlighting the fine balance within the committee's perspectives.

• Long-Term Inflation Outlook Adjusted: The Fed has signaled a potential shift in its inflation management strategy by increasing the "longer-run" inflation target dot from 2.5% to 2.6%. This adjustment hints at a more flexible approach to inflation, potentially accommodating higher rates in response to the ballooning national debt, which is approaching $35 trillion.

WHY IT MATTERS:

• Market Dynamics: The stock market has rallied since the last FOMC meeting, with significant contributions from sectors like crypto, despite a halving in expectations for 2024 rate cuts. This rally, amid fluctuating rate-cut forecasts and broad macroeconomic uncertainties gives the Fed cover to leave rates higher for longer.

• Economic Outlook: The Fed's updated economic forecasts indicate optimism, with GDP growth projections for this year revised upwards from 1.4% to 2.1%. Additionally, unemployment rate expectations have slightly improved, while inflation projections remain steady, hinting at a gradual approach to the Fed's 2% target.

• Long-Term Strategy: The shift in longer-term rate forecasts suggests a cautious yet less accommodative Fed stance in the coming years. This realignment, reflecting a potentially higher neutral rate, indicates the Fed's readiness to adjust its policy in response to sustained economic performance and evolving fiscal landscapes.

• Short-term Implications: The odds of a rate cut at the June meeting rose from 55% to 70% immediately after the release of the FOMC statement.

BlackRock Tokenizes Investment Fund on Ethereum Network

WHAT HAPPENED:

• New Fund Announcement: BlackRock, the world's largest asset manager, has announced the creation of the BlackRock USD Institutional Digital Liquidity Fund in partnership with Securitize, a leading asset tokenization firm. This new fund marks a significant step into the tokenization of real-world assets (RWA) on the Ethereum blockchain.

• Market Reaction: Following the announcement, there was notable market movement with Ondo Finance's native token, ONDO, seeing a surge of up to 20%. Ondo is a protocol on ETH built to tokenize RWAs and has BlackRock as an early investor.

• Background Context: This move follows BlackRock's successful launch of a spot-based bitcoin ETF earlier in the year, which quickly amassed over $15 billion in assets under management. Additionally, a filing for a spot ether ETF had been made, underscoring BlackRock CEO Larry Fink's view of these developments as precursors to a broader embrace of tokenization within financial markets.

WHY IT MATTERS:

• Tokenization's Rising Tide: The initiative by BlackRock and Securitize to launch a digital liquidity fund focused on tokenized real-world assets underscores the growing intersection between traditional finance and digital assets. This trend reflects a significant shift towards leveraging blockchain technology for enhancing the efficiency and accessibility of financial instruments.

• Industry Benchmark: BlackRock's entry into tokenized funds, with a minimum investment threshold of $100,000, sets a new benchmark for institutional involvement in digital assets. It signals a growing acceptance and interest from mainstream finance in the potentials of blockchain technology and digital asset tokenization.

• Market Expansion Forecast: Citigroup's projection that the tokenization market could expand to $5 trillion by 2030 highlights the immense potential and growth trajectory of tokenizing real-world assets. BlackRock's move could catalyze further interest and investment in this space from other financial institutions.

Bloomberg

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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