Fed officials reiterate ‘modest’ path forward for interest rate cuts

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Taking stock

As we noted yesterday, we have a relatively quiet week for economic data ahead. Let’s take the breather as an opportunity to review where we currently stand. 

The data we’ve gotten since the Fed’s 50-basis point cut last month shows, generally, economic strength. September’s jobs report showed employers added 254,000 jobs, blowing expectations (140,000) out of the water. Unemployment is steady at 4.2% and annual inflation is hovering around 2.2% — not far off from central bankers’ 2% target. 

Things are looking good. And, it’s worth noting, things were looking up when the Fed opted for its massive cut in September after a summer of Goldilocks data. 

Enter the sentiment shift: Did the Fed go too far in September? 

Some analysts argue yes. 

“Today’s data further confirms our assessment that the Fed was too dovish when it cut the federal funds rate by 50bps on Sept. 18,” strategists at Yardeni Research wrote in a note after last week’s consumer spending figures dropped. 

Noelle Acheson, author of “Crypto is Macro Now,” said she’s questioning whether a November cut makes sense at all. The markets may agree. 

Fed funds futures are now predicting a 10% chance of no rate cut in November, according to CME Group data. It may not seem like much, but markets were calling for a 3% chance just last week. 

The overwhelming majority is still anticipating a 25bps cut. Tomorrow’s Beige Book release should give us some more insight.  

Fed officials are now on a bit of a press tour, with several speakers this week reiterating the party line: Rates need to come down slowly. 

Kansas Fed President Jeffrey Schmid said Monday that the Fed should be making “modest” adjustments. Dallas President Lorie Logan said she supports a “strategy of gradually lowering the policy rate.” And Minneapolis President Neel Kashkari, a vocal supporter of the September cut, said Monday he also envisions a cautious approach moving forward. 

I take “modest” to mean 25bps cuts. As we know from the dots last month, those would be in line with committee expectations. 

— Casey Wagner 

4.2%

The yield on the 10-year Treasury, as of Tuesday afternoon — the highest level we’ve seen since July. 

The move comes after the yield rose by 12 basis points on Monday as traders sold bonds. Analysts largely attributed that to the comments from Fed officials we outlined above. Prices and yields move in opposite directions. 

A deeper look at Stripe’s Bridge buy

In case you missed it, Stripe confirmed its pending acquisition of stablecoin platform Bridge on Monday. Let’s take a deeper look at that. 

First things first, Eric Risley, a founding partner at advisory firm Architect Partners, told me he believes this deal is “the most important M&A transaction to date for our industry.”

Bridge gives businesses the ability to integrate stablecoin-based payment via an API. This API model Stripe now looks to leverage via the deal is popular (giving app developers a low- or zero-cost entry) Risley noted — adding it has been used by Plaid, Twilio and Amazon Web Services across various sectors.

“This transaction is more evidence of the broadening recognition that stablecoin-based payments have compelling benefits and are being embraced by non-crypto companies,” Risley explained.

Those benefits include virtually instant settlement and very low fees, he added, which are particularly notable for cross-border payments between businesses and individuals.

“While Bridge can use any stablecoin, it also allows the creation of new stablecoins, as desired by clients, while enabling stablecoin-to-stablecoin exchange,” Risley said. “This clearly suggests we are just entering what may become a proliferation of stablecoins, albeit, regulatory oversight may discourage this trend.”

Speaking of regulatory oversight, US Sen. Bill Hagerty, R-Tenn., put out a discussion draft of legislation to establish a framework related to supervising stablecoin issuers.

In addition to enhancing transactions and payment systems, Hagerty noted in a statement, stablecoins could potentially “help create new demand for US [Treasurys] as we work to address our unsustainable deficit.” 

This Stripe-Bridge deal comes as the market capitalization for stablecoins is at roughly $170 billion. A report published last week by a16z notes that by enabling fast, cheap, global payments, stablecoins have become “one of crypto’s most obvious killer apps.”

It notes that stablecoins saw $8.5 trillion in transaction volume (via 1.1 billion transactions) in 2024’s second quarter.

“If you compare stablecoin activity against crypto’s volatile market cycles, the two appear to be uncorrelated,” the report adds. “Indeed, the number of monthly stablecoin-sending addresses has continued to increase even as spot crypto trading volumes have declined.”

Stripe joins other big players that see the potential of stablecoins.  

PayPal introduced its dollar-backed stablecoin last year. Digital payments network Ripple said in April it would launch a USD-pegged stablecoin backed by US dollar deposits, short-term US Treasurys and other cash equivalents.

Meanwhile, incumbent stablecoin issuer Tether reported a $5.2 billion profit for the first half of 2024.

“It’s hard to imagine a more fundamentally competitive move against the traditional banking system,” Risley said of Stripe’s buy. “Payments at scale without a bank involved. The regulators understand this implication.”

— Ben Strack

The Gensler question remains

Just two weeks from Election Day, it remains to be seen how crucial a voting bloc the crypto community will be for the candidates in what is poised to be a neck-and-neck race.

While many crypto industry participants have lauded Donald Trump’s crypto-related promises and have thrown support behind him, other segment executives (namely SkyBridge Capital’s Anthony Scaramucci and Ripple co-founder Chris Larsen) are on the Kamala Harris train.

Coinbase chief policy officer Faryar Shirzad previously noted how comprehensive Trump’s vision has been, telling me “more substance and more detail are critical” as crypto folk weigh the candidates.

That could be a slight problem for Harris in certain crypto circles. 

Indeed, Blockchain Association government relations director Ron Hammond called the vice president’s pro-crypto remarks in recent weeks “a little vague.” 

Remaining sought-after details include clarity on who Harris would want leading US regulatory agencies. Bloomberg reported last month that big Dem donors were urging her to fire the FTC’s Lina Khan and SEC Chair Gary Gensler.

Though Unchained reported the Harris team is vetting possible replacements for Gensler, the VP has not addressed this issue specifically.  

“We’ve moved the needle a little bit, but we haven’t seen any statement on Gensler yet, so that’s the big thing we’re still trying to push for,” Hammond said.

On the other side, Trump said during a speech at July’s Bitcoin 2024 conference that he would fire Gensler. Hammond said he expects the former president would swiftly do that in early 2025, if elected.

The Blockchain Association exec acknowledged that it would be a “politically aggressive move” for Harris to replace Gensler before his term expires in 2026. But, Hammond noted he believes Gensler is indeed “a political liability,” adding that Mark Cuban, for example, has essentially told Harris’s team as much. 

“It sets up a pretty intense battle, because if [Gensler] sticks around, it’s going to be the same old mantra we’ve been seeing for the last four years,” Hammond said.

Hammond doesn’t expect Harris to prioritize any pre-Election statements on this front as the campaigning hits the homestretch. 

So I guess Harris may just address the Gensler question as president or president-elect — if, of course, she gets that chance. 

— Ben Strack

Bulletin Board 

• In a move that could impact Donald Trump’s plan to “fire” SEC Chair Gary Gensler should he win next month, the Supreme Court on Monday declined to hear an appeal that sought to give presidents explicit power over federal agencies. As is customary, the court issued the decision without comment, and no justices issued dissenting opinions. 
• Ripple co-founder Chris Larsen said Monday he would be donating an additional $10 million to Kamala Harris’s campaign, in the form of XRP. Larsen has previously donated $1.75 million to the FF PAC, a Democratic effort that has deployed $75.4 million in support of Harris, latest FEC filings show. 
• Polymarket is apparently double-checking to make sure people in the US are not using the platform, Bloomberg reported Tuesday. Perhaps a crackdown on VPNs is in the future. 

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