Fed to enter gradual money-printing phase, says Lyn Alden

Economist and Bitcoin supporter Lyn Alden says the US Federal Reserve may be moving into a gradual phase of money printing, increasing liquidity steadily rather than all at once. She expects that process to drive up asset prices, albeit not as much as some Bitcoin fans had anticipated. 

Alden’s view is that the Fed will not accelerate it on a massive scale, expanding its balance sheet progressively during a period of overall economic expansion and banking activity. 

In her investment strategy newsletter for February 8, Alden said her most important expectation for the Fed is to increase its balance sheet at a rate similar to the growth of total bank assets or national nominal GDP. This suggests the central bank would still add liquidity to the financial system. 

Such an expansion of the money supply is often called “money printing,” although it is primarily achieved through digital financial operations, not physical cash. When the Fed expands its balance sheet, it typically buys government bonds or other financial assets. 

This injects money into the banking system, making credit more available and encouraging investment. Alden noted that this environment helps hold “high-quality scarce assets.” That covers investments with a limited supply and strong store-of-value qualities. 

Commodities such as gold, certain stocks, and cryptocurrencies like Bitcoin are common examples. But she also cautioned investors to be wary of parts of the market that have gotten too hot and to pay attention to assets that remain undervalued or overlooked. 

Her comments were made soon after US President Donald Trump named Kevin Warsh to serve as the next chairman of the Federal Reserve. The implication injected considerable uncertainty into financial markets because some investors believe Warsh aligns more closely with tighter monetary policy than other candidates. 

Markets remain unsure about interest rates before the Fed meeting

Interest rate policy is a major factor in financial markets (cryptocurrencies included). When interest rates are low and the money supply is high, many investors turn to riskier assets in search of higher returns. That can drive up prices of stocks, crypto, and other investments. 

Then, when interest rates are higher, and it’s more difficult to borrow money, asset prices can slow or fall. Recent market research indicates mixed hopes regarding the Fed’s next move. Roughly 19.9% of traders say the Fed will cut rates next month at its next Federal Open Market Committee (FOMC) meeting, according to CME FedWatch. 

That’s lower than 23% who had anticipated a rate cut only days previously, indicating waning confidence in the prospect of near-term easing. Federal Reserve Chairman Jerome Powell has shown caution and at times sent mixed signals about future policy. The Fed cut interest rates several times in 2023, but Powell has cautioned that inflation risks persist. 

At the same time, he expressed concerns about employment. This illustrates very clearly how delicate a balance the Fed must maintain. Powell said he believes that after the December Federal Open Market Committee meeting, inflation risks remain tilted upward, and employment risks are tilted downward.

Fed leadership transition increases market uncertainty

The change in governance at the Federal Reserve is another factor shaping market expectations. Powell’s term as Fed chairman is set to expire in May 2025, and Kevin Warsh has been nominated as a possible successor. 

But Warsh has not yet been confirmed by the Senate, leaving uncertainty over the future direction of monetary policy. Different Fed leaders can have different priorities. Some advocate a tighter policy to tame inflation, while others advocate a looser policy to boost growth and employment. 

Investors pay close attention to leadership changes because they could impact interest rates, liquidity, and broader market conditions. But even as uncertainty continues to loom, Alden’s outlook suggests the Fed won’t increase the money supply by much in the foreseeable future.