When Will The Fed Finally Pivot?


In this episode of Bankless Shows, Itay Vinik, Co-Founder & Chief Investment Officer at Equi joins Ryan and David from Bankless to discuss Itay’s outlook on 2023 and beyond.

Read our notes below to learn more.

How Itay Got Here

  • Itay started a hedge funds trading volatility and has been exposed to the markets for 15 years.
  • Itay’s hedge fund focuses on delta-neutral strategies on DeFi.
  • Exited CeFi lenders when Luna crashed.

Inputs on Terra/LUNA

  • All DeFi projects are funded by VC money.
  • Decided to focus on other assets after Luna collapse anticipating contagion effects.

Itay’s Sentiment

  • The goal is to protect capital as even diversification won’t work at the current macro environment.

History of the Macro Environment 

  • The U.S. became the central currency after the Second World War.
  • In 1971, Nixon dropped the U.S. out of the gold standard and the modern era of high inflation began.
  • In the 1980s, Volcker raised interest rates to double digits to bring inflation down.

Global Central Bank Policy Rate

  • Global Central bank Interest rates since then have been near 0 after the global financial crisis of 2008.
  • Quantitative Easing started after the financial crisis when more money was printed into supply.
  • Ben Bernanke felt justified in printing money because of the thesis that it will cause a wealth effect (the idea that people will spend more looking at the stock market rising).

U.S. Fed Balance Sheet

  • Every time the FED stopped printing money, the economy went into crisis.
  • FED decided to double the balance sheet in 2020 during COVID.
  • The FED creates money out of thin air and buys U.S.Treasuries giving money to the U.S. government.

Nasdaq-100 Index & Fed Balance Sheet

  • During COVID, The FED added a lot to its balance sheet and it was very good for risk assets.
  • Now, a small decline in the balance sheet causes a lot of pain in the markets.
  • Markets have become more dependent on the liquidity from the FED.

Pandemic Support Programs

  • The reason for inflation during money printing during COVID was because there was a monetary stimulus to people but nowhere to spend it.

U.S. Personal Savings Rate

  • It is seen from the above chart that people’s Personal Savings Rates were up after the COVID stimulus but now the Credit Card Debt Outstanding is at an all-time high while savings are at an all-time low.

U.S. M2

  • M2 money supply has seen a 40% increase in 2020.

Where Are We Now?

  • FED has realized they have made a mistake and trying to fix it by raising interest rates and taking $100b/month out of circulation (like the burn mechanism in crypto).
  • FED cannot print money this time as inflation is already high.


  • Inflation is expected to decelerate and massive layoffs could help bring the inflation down.


  • Mortgage rates are going up and buyers cannot buy.
  • Sellers cannot sell as they are locked into low rates.
  • The labor market crash might cause a crash in the housing market.


  • The market believes that 4% interest rates are going to be in place for longer.
  • The market also believes some sort of FED pivot could happen in June 2023.
  • Rate cuts have saved the economy three times and rate cuts didn’t save the economy from a recession in the other three instances.

The Last Dance?

  • Everyone is playing the liquidity trade.
  • All the assets like S&P, crypto, and precious metals pricing are moving in a similar direction with different volatility.
  • It is important to manage risks during tightening.
  • Even Albert Einstein lost money FOMOing during his time.

Possible Outcomes

  • Soft landing is the hopium case where money printing is back and asset prices rise while risking higher inflation.
  • Thinks a Hard landing is the most likely scenario, 2008 financial crisis was a hard landing.
  • A catastrophic landing will be if there are systemic risks like the financial crisis.

Bull Market Mid-2023

  • Markets could see a bottom in Mid-2023 as the stock market has been in a bear market for a year now and the usual bear markets are 18 months long.

The Dollar

  • The dollar is being used as the reserve currency for trade worldwide makes it strong.

Itay’s Advice & Closing

  • Increase your productivity, save more, and don’t overleverage.
  • Market recovery from a recession is the best time to invest.

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