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BlackRock Cautious on Fed Cuts Amid Inflation, Despite Rising Crypto ETF Investments
- BlackRock predicts smaller Fed rate cuts than the market anticipates, due to ongoing inflation concerns.
- Asset managers continue high-risk investments, with significant crypto allocations despite market volatility.
- Market expectations contrast with BlackRock’s cautious outlook, with predictions of rates dropping to 3.5%.
- Meanwhile, Bitcoin ETFs are once again seeing positive net flows with only one day of net outflows this week.
In a recent note, Jean Boivin, who leads BlackRock Investment Institute strategists, wrote that they see “resurgent recession fears”, based on less favourable than expected economic data “pre-U.S. election jitters”, and some profit taking by investors.
Related: Standard Chartered Predicts Record BTC Price, Says Election Matters Less Than Market Thinks
With this in mind they urged that the Fed may not cut rates as much as most would hope:
We don’t see the Federal Reserve cutting policy rates as sharply as markets expect.
Jean Boivin, BlackRock Boivin suggests that despite near-term inflation nearing Fed targets, persistent medium-term inflation will limit rate cuts. Meanwhile, recession fears have pushed 10-year yields to 15-month lows as markets price in aggressive rate reductions.
Even as inflation is falling toward the Fed’s target in the near term, higher inflation over the medium term will limit how far the Fed can cut rates, we think. Growth jitters and cooling inflation have driven 10-year yields to 15-month lows as investors have priced in more than 100 basis points of cuts by year-end and about 240 basis points of cuts over the next 12 months—implying a Fed response to a recession.
Jean Boivin, BlackRock Asset Manager Allocate to ETFs as Market Expects Solid Rate Cuts
Despite these warnings, many asset managers are still allocating to high-risk assets like crypto.
According to Ryan Rasmussen, Head of Research at BitwiseInvest, registered investment advisors (RIAs) are allocating as much as 6% of crypto exchange-traded funds (ETFs) to portfolios, with 4% in Bitcoin and 2% in Ethereum.
Interestingly, he says these RIAs “sold the Nasdaq 100 (tech stocks) to buy Ethereum”.
This suggests that markets don’t agree with BlackRock’s assessment; instead, they seem to expect rates to be cut to 3.5% over the next six months, according to Charlie Bilello, Chief Market Strategist at Creative Planning:
Bitcoin ETFs Rebound Strongly Amid Market Fluctuations
Meanwhile, the Spot Bitcoin ETFs are having a bit of a moment. Bloomberg Senior ETF analyst Eric Balchunas comments on the resilience of Spot Bitcoin ETFs despite previous doubts and negative reactions, noting they’re now attracting investments again.
Related: Consumer Watchdog Flags Tether for Lack of Transparency in US Dollar Reserves Audit
Looking at data from Farside, we can see that the most recent trading day saw US$39 million (AU$58 m) in net inflows, after Wednesday, which was the only day with outflows so far this week.
Author
Aaron Feuerstein
Aaron Feuerstein is a freelance writer based in Melbourne. His focus is on decentralised finance and the regulatory space surrounding blockchain. He holds a Master's in Accounting. When he is not studying the latest legal case, he enjoys his time as a modest but eager hobby cook.
