We're at a potential inflection point right now. Inflation jumped ~1% from Feb to March, the biggest jump since the post-covid era.
In the most bullish scenario, inflation runs to ~12% and BTC goes to ~$1.0M within a couple of years.
It's possible this is just a temporary energy-related shock, but if expectations rise and wages start to go up then we are set for a 2nd wave of sticky higher inflation.
The Fed may very well be backed into a corner here. Even if they do raise rates there is a material risk that doesn't lower expectations.
A fiscal dominance scenario could take hold where the market expects higher rates will lead to uncontrollable deficits and debt monetization.
The Fed already took a credibility hit in 2020-2022, a new wave of inflation could signal persistence and become more difficult to control as rate hikes are no longer starting from 0%, and the Fed has much less room to hike before causing fiscal stress.
With a dovish Fed chair about to take over (>95% chance), inflation may be allowed to run hot while real rates stay negative.
In that situation, risk assets will soar and the dollar will become materially weaker.
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