The likelihood of a recession is increasing, markets are in decline, and the president is pushing forward with tariffs.
This unpredictable strategy is strikingly reminiscent of the president’s initial term, which kicked off with enthusiasm before transitioning into one of the most significant bull markets in recent memory. However, this time, the president appears to have shifted focus away from the stock market as a primary indicator of success, choosing instead to prioritize the long-term vitality of the US economy.
The president has vowed to lead the nation into its next “Golden Age,” but before that can occur, the economy might require some tough adjustments. There is growing speculation that he is intentionally stirring up fears of economic growth and driving down the market to compel the Federal Reserve to decrease interest rates.
This may sound far-fetched, yet there could be some method to the apparent chaos.
A Calculated Downturn
For many years, it was an unspoken convention in Washington that the president must refrain from commenting on Federal Reserve policy. However, this administration has disregarded that tradition, openly suggesting that the Fed should consult with the president regarding interest rates.
In February, the president took to social platforms to assert, “Interest Rates should be lowered.” When the central bank did not acquiesce, the administration reportedly attempted to “force asset prices down to pressure Jerome Powell into reducing interest rates,” as noted by entrepreneur and market commentator Anthony Pompliano.
Pompliano and others suggest that the administration is deliberately inducing a stock market decline to lower borrowing costs ahead of the government needing to refinance $7 trillion in debt in the coming six months.
The strategy seems to be gaining traction, with the 10-year yield dropping nearly 60 basis points from its earlier peak this year. While a rate cut is not anticipated at the Fed’s March meeting, the chances of one in May have risen to over 50%.
Image credit: Alex Kruger
Rising Recession Probability
The sell-off in both the crypto and stock markets on March 10 was primarily driven by concerns that the US economy could be heading for a recession. These fears were reflected in the bond market, where the 10-year yield fell to its lowest level since the president took office.
Amidst this context, analysts have increased their recession probability for this year to 40% from 30%, according to recent assessments.
Increasing recession risks lead to downturn in the crypto market. Source: CoinMarketCap
“We perceive a significant risk that the US may enter a recession this year due to extreme policies,” the analysts remarked.
Economists from another major financial institution are equally concerned that the trade war initiated by the president could lead to a sharp economic downturn, raising their recession forecast to 20% from 15%.
They indicate that the situation could deteriorate further if the administration remains resolute in its policies “even when faced with substantially worse data.”
Expansion into DeFi
A company focused on real-world asset tokenization has partnered with another firm to supply data feeds for its tokenized offerings, which include a substantial liquidity fund. This collaboration allows for the use of the fund across various decentralized finance (DeFi) products such as Morpho, Compound, and Spark, potentially broadening its applications within money market exchanges and collateralized DeFi platforms.
This fund has quickly grown to become the largest tokenized Treasury fund globally, amassing $500 million in assets in less than four months. It operates on the Ethereum network and invests solely in cash, US Treasury bills, and repurchase agreements.
Ether Staking Initiative
A prominent securities exchange is seeking regulatory approval to introduce staking options in a notable Ether exchange-traded fund.
In a recent filing, the exchange proposed a rule modification that would enable this Ethereum fund to “stake, or facilitate the staking of, all or some of the Trust’s Ether through trusted staking providers.”
This potential addition could enhance the appeal of Ether ETFs by providing investors with yield options.
Back in February, the regulatory body acknowledged multiple applications related to crypto ETFs. Timing their proposal with the observed shifts in regulation since the current president’s tenure, the exchange aims to capitalize on the moment.
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