“I think that the key here is that there’s going to be more cuts in the pipeline, as most participants judged that it’s going to be appropriate to ease policy further.” – 01:33
Elias Haddad, Senior Market Strategist of FX at Brown Brothers Harriman, joins Remy Blaire to discuss the significance of community banks, referencing comments made by Fed Chair Powell.
As the conversation unfolds, Remy and Elias delve into the recent FOMC minutes, which reveal a consensus among officials regarding the need for further easing. Elias emphasizes that while there were no major surprises in the minutes, the potential for additional rate cuts remains, particularly if labor market data continues to show signs of weakness. He articulates concerns about the current monetary policy being too restrictive, which could worsen the already fragile labor market backdrop. Despite high inflation, Elias points out that the anticipated upside risks to inflation are not materializing, suggesting a possible dovish shift from the Fed by the December meeting.
The discussion then shifts to the U.S. dollar and the growing influence of stablecoins in global finance. Remy prompts Elias to explore the implications of stablecoin growth on the U.S. currency and Treasury markets. Elias challenges the prevailing narrative that an increase in stablecoin capitalization will significantly boost demand for the dollar and Treasuries. He outlines three key reasons for his skepticism: the relatively small size of the stablecoin market compared to the overall FX market, the likelihood that stablecoin inflows will consist of recycled money rather than new capital, and the structural challenges facing the U.S. dollar as a primary reserve currency.