Hedge Fund Chief’s Inflation Prediction And What it Could Mean for Crypto (Opinion)

In a CNBC interview over the week, a major hedge fund manager predicted that “massive inflation” will lead the Fed to hike interest rates six times by 2024. Crypto traders are keeping a close watch on the macro-financial environment as they wrap up another volatile month.

Federated Hermes has over $600 billion in assets under management. Phil Orlando, the investment firm’s chief equity strategist, has been a long-time stock market bull but expects the big changes at the Federal Reserve to dampen this year’s surging stock market rally.

Orlando: Big Inflation and Fed’s Actions

Speaking to Stephanie Landsman on CNBC’s “Trading Nation” Wednesday, Orlando projected a slew of rate hikes ahead, but probably not until Q3 of next year:

“Our best guess is that we will see two quarter point rate hikes out of the Fed in the second half of next year, and perhaps another four quarter point rate hikes over the course of calendar ’23.”

While the White House administration and Federal Reserve have progressed from saying deflation is the real danger to insisting inflation is only temporary, Orlando doubts they believe what they’re saying:

“The Fed has been, I think to some degree, talking a good game along with the Biden administration in terms of the temporary or transitory of inflation.”

He cited as evidence the minutes from the November Federal Open Market Committee meeting, in which members said they believe current conditions already warrant tapering back the Fed’s massive liquidity operations.

That includes the Fed’s ongoing shopping spree with a blank check to buy U.S. Treasury bonds, mortgage-backed bonds, and overnight money market loans.

Fed’s Impact on Crypto

The crypto industry’s products are in some ways a market substitute and competitor with government fiat currencies and the conventional investments like stocks that are denominated in those currencies and are priced in markets that operate far upstream in global finance, close to the Fed’s sources of new credit in the U.S. banking system.

But as institutional and mainstream retail investors continue to embrace and adopt digital assets, they are increasingly becoming a complementary financial product. As a result, central bank efforts to tame inflation could hit crypto valuations with a double headwind.

While the digital gold thesis underlying Bitcoin made the world’s first successful cryptocurrency a non-correlated asset to equities for a decade, hastening mainstream adoption has seen the price correlate with stock markets starting around a year ago and continuing into this year.

As interest rates increase, investors can get higher returns than usual from less risky investments than peer-to-peer cryptocurrencies or corporate shares.

And if Washington shores up the U.S. dollar, deflationary cryptocurrencies used to shelter savings from inflation might lose some of their appeal.