A recent analysis by Quinn Thompson, CIO of Lekker Capital, has raised intriguing points regarding the implications of Jerome Powell’s messaging after the Federal Open Market Committee (FOMC) meeting on October 29. Thompson suggests that Powell’s comments were strategically crafted to exert political pressure rather than to clarify macroeconomic uncertainties, with notable repercussions for cryptocurrency liquidity.
In his post on X, Thompson articulated that Powell seemed to be navigating a complex political landscape, particularly in the context of a potential government shutdown. He described Powell’s remarks as a kind of political maneuvering designed to prompt the administration to reopen the government, implying that failure to do so could hinder the Federal Reserve’s capacity for further easing in December. This approach, Thompson argued, felt like a thinly veiled threat indicating that without data from the government, which has been impeded by the shutdown starting October 1, the Fed might refrain from cutting rates further.
Thompson highlighted that it was unusual for Powell to directly address market expectations, which he typically avoids. However, after reducing the policy rate by 25 basis points to a target range of 3.75%–4.00%, Powell made it clear that a further reduction in December was not guaranteed, contradicting his usual stance of not validating market pricing.
The immediate aftermath of Powell’s comments saw a significant market reaction. Treasury yields rose, and the likelihood of a rate cut in December diminished from a near-certainty to a more uncertain stance, resulting in a downturn in equities and cryptocurrencies, including bitcoin. Thompson emphasized that Powell’s intention was not to signal a tightening cycle but rather to underline conditionality based on government action.
He interpreted Powell’s warnings about the Fed’s reliance on data — particularly in light of ongoing economic challenges and rising unemployment — as implicitly highlighting the adverse effects of a government shutdown on economic decision-making. According to Thompson, the Fed’s rationale behind the recent rate cut, driven by fears of labor market deterioration and subdued inflation, should actually bode well for crypto assets. Historically, such conditions often lead to more favorable liquidity environments, which are beneficial for cryptocurrencies.
Additionally, Thompson pointed out a pivotal development: the Fed announced that it would halt quantitative tightening (QT) on December 1. Instead of allowing its Treasury and mortgage holdings to decrease passively, the Fed plans to reinvest maturing securities back into Treasuries. This strategic shift effectively injects additional dollar liquidity into the market, a factor Thompson believes is critical for the crypto sector, even if not labeled as quantitative easing (QE).
Thompson forecasts that once government operations resume, the resulting economic data is likely to warrant continued easing measures rather than restrictions. He expressed optimism about the upcoming macroeconomic landscape, predicting that inflation may decrease and the labor market may continue to weaken, supporting an ongoing accommodating stance from the Fed.
Furthermore, Thompson suggested that Powell’s term as Chair is set to expire in six months, creating a “shadow Fed chair” situation that could potentially favor a more supportive monetary policy. This anticipated bias could signal a commitment to nurturing liquidity conditions, especially as the Fed prepares to restart balance sheet growth.
As of now, the total crypto market capitalization stands at approximately $3.73 trillion, a figure that seems to reflect an underlying bullish sentiment driven by the Fed’s evolving liquidity dynamics. Thompson’s analysis presents an optimistic outlook for cryptocurrencies in the context of upcoming economic developments and shifts in Federal Reserve policy.
