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Felix Jauvin and Casey Wagner of Blockworks’ Forward Guidance newsletter are taking over the Daily today. If you enjoy these editions, be sure to subscribe to Forward Guidance for daily updates on the growing intersection between crypto and macroeconomics, policy and finance.

The economy is doing fine

Today we received some data points that further solidified the notion that the economy is largely doing okay, or at least much better than what one might think after the Fed cut rates by 50 basis points last month. 

Retail sales came in above consensus MoM at 0.4% vs. the expected 0.3%, significantly above the previous month’s move of 0.1%. 

With this upside surprise in mind, the Atlanta FED revised its GDPNow forecast for the third quarter higher to 3.4% from 3.2%. 

As we can see in the chart below, almost every economic datapoint is suddenly surprising to the upside after a summer growth scare:

This dynamic has led to a significant whipsaw effect in terms of the trajectory of the rate-cutting cycle that began last month. Looking at the SOFR curve that showcases the rate-cutting path over the next few years, we can glean a few insights:

• Through the growth scare that we experienced over the summer, we saw a significant amount of rate cuts get aggressively priced in.

• The climax of this aggressiveness got priced in right around the first rate cut from the Fed.

Interestingly, from there, we’ve actually seen the rate-cutting path the market is pricing in become more shallow than the Fed’s dot plots from only a month ago. Below is a comparison of the rate-cutting path against the Fed’s median dot plot forecast:

Whereas the Fed saw a terminal rate at approximately 2.9%, the market now expects committee members to finish the cutting path at around 3.3%. There’s two explanations here:

1. The Fed’s dot plot forecast is already stale compared to the recent positive economic data.

2. The market doesn’t believe the Fed is going to be as dovish as it says it will be in its forecast. 

I sort of believe both possibilities. I’ve been a strong believer that the economy is not on the verge of recession, and the recent economic data that keeps surprising to the upside is reinforcing that idea. 

That said, I also think the market underestimates how committed the Fed is to reaching its desired soft landing. To do that, it needs to proactively cut rates to protect the labor market despite growth looking pretty good. 

So where does all of this leave us? In goldilocks territory, really. As long as inflation doesn’t significantly accelerate, the Fed can continue to cut rates into resilient growth.

— Felix Jauvin

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4. FBI arrests alleged hacker behind fake SEC bitcoin ETF X post

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On Thursday, the FBI unsealed an indictment against Eric Council Jr., a 25-year-old from Alabama allegedly responsible for the January 2024 SEC X (aka Twitter) account hack. The hack, as you may remember, involved a post from the agency’s account falsely announcing that spot bitcoin ETFs had been approved. The fraudulent post caused a temporary surge in bitcoin’s price before the SEC clarified that its account had been compromised and no such approval had been granted.

Council Jr. allegedly gained access to the account via a SIM swap, allowing his unnamed “co-conspirators” to then make the “unauthorized post.” 

He gained access to the account by creating a fake ID of the person who operated it and got a cell phone provider in Alabama to give him a SIM linked to this person’s phone number. He was paid in BTC for his role in the security breach, the FBI said. 

Council Jr., according to the FBI, later did some internet searches. Among his history were inquiries like: “How can I know for sure if I am being investigated by the FBI,” and “What are the signs that you are under investigation by law enforcement or the FBI even if you have not been contacted by them.” You can’t make this stuff up. 

To be clear, Council Jr. is not being charged with insider trading. Based on the indictment, it sounds like he didn’t even trade on the fake news at all. He was charged with one count of conspiracy to commit identity theft and access device fraud for his role in the scheme. 

Whether or not these co-conspirators emerge or face legal consequences — which I’d guess would be related to trades made on the fake news — remains to be seen. If we’re operating under the assumption that BTC is a commodity (which, according to the SEC, it is), the CFTC and DOJ would be the agencies of authority here.

— Casey Wagner

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