Arthur Hayes Says Fed Rate Hikes Will Prompt Wealthy Investors To Buy More Bitcoin, Real Estate, Watches And Wine

Detailed summary

Higher Federal Reserve rates are supposed to tighten money, but they are giving wealthy investors extra cash to spend on Bitcoin (BTC), real estate, watches, and wine, Flop Labs…

Higher Federal Reserve rates are supposed to tighten money, but they are giving wealthy investors extra cash to spend on Bitcoin (BTC), real estate, watches, and wine, Flop Labs CEO Arthur Hayes said.

In an interview on Saturday with The Rollup podcast, Hayes made the case that higher rates don't drain money from the financial system the way many investors believe. Every hike actually adds to it, he said.

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Banks have about $3 trillion in reserves at the Fed, he said, and the Fed pays interest on those funds, Hayes said. Hayes reckons a 25-basis-point hike would add about $7.5 billion a year to bank income.

The same goes for Treasury bills. These short-term US government debt securities pay interest that moves with the Fed's policy rate. There's about $7 trillion of them out there, Hayes said. He estimated a quarter-point hike would cost holders $17 billion more in interest a year.

Hayes estimated the boost at about $25 billion per hike. "I estimate that for every 25 basis point hike, you raise $25 billion of extra liquidity," he said.

Most of that money goes to banks and wealthy investors, Hayes said. They don't have to spend it on everyday goods, he added, so they put it into more financial assets. People invest in hard assets to preserve their purchasing power, he said. "You go and buy more of it because you just got a raise from the Fed," Hayes said.

The effect is most noticeable in economies with a lot of debt, and where borrowing is mostly short-term, he said. In those economies, he said, raising rates to fight inflation ends up adding to it. He cited studies of Brazil in the 1980s as evidence.

The Fed raised its benchmark rate a quarter-point in September to a range of 3.75% to 4%, which was the first hike by the central bank since July 2023.

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