"Transitory Inflation"

Daily Updates:

FOMC Meeting

• The Federal Reserve, as expected, opted to leave the federal funds rate unchanged at 4.25%-4.5%. However, it was the revised SEP and an announcement on the progress of QT which took centre stage.
• FOMC committee members increased their median estimate for core inflation at the end of 2025 from 2.5% to 2.8% and revised their growth forecasts for the year down from 2.1% to 1.7%. Additionally, 18 of the 19 SEP participants see upside risks to inflation and downside risks to GDP growth. 

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• That sentiment in the SEP, however, was downplayed by Powell throughout the press conference. The Chair stated that “the base case” for inflation from President Trump’s tariffs regime is “transitory”. He stated that “inflation has started to move up now, we think partly in response to tariffs” and that “further progress [on inflation] may be delayed” over the course of 2025 but will pick up again from 2026 – with the 2% target likely now to be reached by 2027. 
• He continued to emphasise that whilst some measures of short-term inflation expectations have risen and that “must be related to tariffs”, long-term expectations, both survey and market-based, are well anchored – “5y5y forwards breakevens are either flat, or actually down in the case of the longer term ones” and that “we do see pretty solid hard data still”

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• Officials still forecast two rate cuts for 2025 – the same as in their December SEP. When asked why members still project two rate cuts amidst delayed inflation, Powell highlighted that the higher inflation forecasts and lower growth forecasts largely “balance each other out”, rhetorically asking “what would you write down?” in the current period of “really high uncertainty”. 
• However, that response downplayed a more hawkish distribution in the rate cuts from December – eight of the participants now predict only one or no rate cuts for the year, whilst only two members forecast three cuts. 

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• Chair Powell’s dovish delivery of an interest rate pause saw BTC rally as high as $86K. ETH is currently up 3.4% on the day, having regained the $2K mark.

• At-the-money implied volatility has dropped off at the front-end of the term structure for BTC, and short-term sentiment has improved, with volatility smiles skewing towards calls at all tenors as spot rallied. In ETH, however, options at tenors less than 60 days are still expressing a neutral-to-bearish skew. 

DeFi

• Ripple CEO Brad Garlinghouse announced that the SEC would drop its legal case against it, marking a major victory for Ripple and an end to the four-year-long legal battle. 

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• Raydium is to launch its own memecoin launchpad, “LaunchLab”. Claiming to be more versatile, it uses existing on-chain infrastructure, making it a seamless “plug-and-play” launchpad for projects already using Raydium’s AMM v4, CP-Swap, and CLMM pools.

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• Volatility Shares LLC, a Florida-based brokerage firm, is launching two funds that track futures in Solana – the first ETFs to do so. The Volatility Shares Solana ETF (ticker SOLZ) will track Solana futures, and the Volatility Shares 2X Solana ETF (SOLT) will offer leveraged exposure. This comes as Sol Futures recently launched on CME. 
• Futures ETFs for both BTC and ETH have preceded the eventual launch of ETFs tied to their spot prices. 

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• Pakistan is planning to create a clear regulatory framework for cryptocurrency trading and digital asset activity to boost international investment in the region. Bilal bin Saqib, chief executive officer at Pakistan Crypto Council, said the nation needs to follow President Trump, who “is making crypto a national priority” in the US. 

This Week’s Calendar:

Charts of the Day: