On the Margin Newsletter: The one thing you missed from the Fed’s June meeting

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Welcome to the On the Margin Newsletter, brought to you by Ben Strack, Casey Wagner and Felix Jauvin. Here’s what you’ll find in today’s edition:

• We revisit the Fed’s last economic projections ahead of next week’s FOMC meeting. 
• There’s a new name on the Trump ticket, and many crypto fans are pleased. 
• Sources indicate a possible launch date for US spot ETH ETFs.

Did the Fed just secretly increase their target?

I’ll be honest. When the FOMC meeting happened last month, I was caught flat-footed. 

In the days leading up to the meeting, it seemed like every economic data point was missing to the downside, with the climax being a soft May CPI print on the day of the June meeting. 

Going into the Fed’s statement release at 2 pm ET, it felt like a dovish dot plot forecast was a lock.

To my surprise, the Summary of Economic Projections guided to only one rate cut in 2024, and they increased their year-end forecast for Core PCE to 2.6 from 2.4. On the margin (wink wink, nudge nudge), it was hawkish.

In the days following the meeting, it felt to me like there were two possibilities:

1. The Fed, after being burned in Q1 2024 with a surprise rebound in inflation, wanted to buy optionality in the lead-up to the next few FOMC meetings but were still leaning dovish. They just wanted to have the optionality.
2. The Fed had made their classic policy mistake once again of getting too hawkish right at the turn of the slowing economy and had just set the path towards a hard landing.

As the weeks went on, I began to realize I had missed something. The unemployment rate forecast for the end of this year had been lowered to where we already were: 4%, from 4.1%.

Because of this change, if June’s unemployment rate rose at all, we would instantly be above the Fed’s year-end forecast. And that’s exactly what happened — it printed at 4.1%. 

Finally, circling back to the present day, we now have inflation prints that are missing to the downside and unemployment rate prints above the Fed’s forecast. This combination lines things up perfectly for the Fed to cut rates in September. 

This mechanical game of central banking chess was interesting. But it felt like they had bet everything on a single dot plot update, and that seemed risky. However, the light bulb really went off when I came across an analysis from Warren Pies (recently an On the Margin podcast guest). He mentioned the following:

Put simply, it sort of looks like the Fed just tweaked their summary of economic projections (SEP) to up the inflation target to 2.8% without explicitly admitting it. Now, that’s a gambit worth betting the house on. 

— Felix Jauvin

13,000

The approximate number of creditors that have received Mt Gox repayments in BTC or bitcoin cash, according to a Tuesday filing.  

Some view these repayments as bearish for BTC given that those receiving funds could opt to sell, driving BTC lower. Galaxy Digital’s Alex Thorn doesn’t necessarily buy into that narrative .

Mt Gox still holds nearly $9 billion worth of BTC, according to Arkham Intelligence data, despite moving billions of dollars worth of the asset this morning to various wallets. 

You’re hired!

Former President Donald Trump received the Republican nomination yesterday and announced his running mate : Ohio Senator JD Vance. 

Vance, author of 2016 memoir Hillbilly Elegy and a former vocal critic of Trump, won his US Senate seat in 2022 on a pro-crypto platform. He advocated against President Biden’s infrastructure bill, which included new tax reporting requirements for crypto exchanges. Vance also in 2022 cited Canadian government efforts to freeze and close bank accounts as a reason for “why crypto is taking off.” 

Vance, alongside Sen. Thom Tillis, R-N.C., sent a letter to SEC Chair Gary Gensler in January after the regulator’s X account prematurely said the agency had approved bitcoin ETFs. Gensler noted at the time the account had been “compromised.”

Vance and Tillis referred to the breach as “unacceptable” and a “colossal error.” 

A venture capitalist, Vance’s crypto holdings are substantial. The senator had between $100,000 and $250,000 of BTC held at Coinbase as of December 2022, federal disclosures show. 

Of the four finalists who made Trump’s vice president shortlist, Vance is the youngest (by almost two decades). In true Apprentice fashion, the former president summoned each VP hopeful to Milwaukee before eliminating them from the running one by one. 

Should Trump win the election, Ohio Gov. Mike DeWine would need to appoint a replacement for Vance’s Senate seat. DeWine’s only parameters are to find someone “suitable” and “qualified.” 

Given his Republican status, he is expected to pick a fellow GOP member. A special election for the seat, in which the appointed senator may or may not run, would then be held in 2026. 

We will see how (and if) the crypto conversation continues for the Trump campaign in the months leading up to the election. 

— Casey Wagner

ETH ETFs have possible launch date, sources say 

Fund firms submitted revised filings for their planned US spot ether ETFs last week and eagerly awaited next steps from the SEC.

Those have come, sources tell Blockworks . 

The securities regulator has asked issuers to submit final registration statements by Wednesday, according to two people close to the filings. The disclosure documents are expected to reveal fees for the funds and all other details not previously disclosed.

Issuers are then set to request for those documents to go “effective,” which is expected by next Monday. That would set up a potential launch date of July 23, the sources added.

An SEC spokesperson said the agency does not comment on individual filings.

July 23 is exactly two months after May 23 — the day the SEC approved 19b-4 proposals by the exchanges on which the ETH funds would trade.

A separate SEC unit — its Division of Corporation Finance — was tasked with working with issuers to finalize disclosure documents before they could launch. 

We’ve talked about flow expectations for the products ( less than BTC funds , but nothing to sneeze at).

Investors will be able to pick from ETH funds by BlackRock, Fidelity, VanEck, Grayscale, 21Shares, Bitwise, Franklin Templeton and Invesco/Galaxy.   

And it looks like we may know all the price points of those offerings by about 5:30 pm ET Wednesday, though several-basis-point differences might not mean much .  

US spot crypto ETFs were, for a while, some mystical end goal that are now coming to fruition. BTC funds started trading in January, and half a year later, we are about to have ETH offerings.

So the checkered flag for this listing process is at the ready, and then another race (for ETH ETF assets) will begin.

It kind of reminds me of that Semisonic lyric:

“Closing time. Every new beginning comes from some other beginning’s end.”

— Ben Strack

Bulletin Board

• Bitcoin, after falling from roughly $65,000 to $63,000 within hours of the Mt Gox wallet transfer this morning, was hovering around $64,550 as of 2 pm ET. Ether’s price was about $3,460 at that time. 
• The latest campaign finance documents show the Trump campaign has received about $3 million in crypto donations — mostly in BTC and ETH. The PACs which received the funds promptly converted the various digital assets into USDC, the disclosures indicate. 
• US retail sales data came in stronger than expected on Tuesday, boosting stocks and bolstering hopes of a Fed rate cut in the fall.

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