Tornado Cash: Open-source code is not property

also, a bigger role for r-star, or neutral rates

“I would maintain that thanks are the highest form of thought; and that gratitude is happiness doubled by wonder.” – G. K. Chesterton ||

Hi everyone, I hope you’re all doing well!

For those of you taking the rest of the week off, I wish you a happy celebration. I’m not American, but I will be taking the next couple of days off to spend time with family, and to enjoy the gratitude glow. Thanksgiving is, bar none, my favourite US holiday, and yes, I know the gruesome story behind it – but the reminder to give thanks is welcome nevertheless, it’s easy to forget to do that in the furious flow of frustrating news.

Speaking of which, I am very, very grateful to each and every one of you who reads this newsletter. Without you, I wouldn’t have the excuse to dig deep in what I care about, and what I want to share. So, with all my heart, thank you.

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Programming note: this newsletter will be taking off the Thanksgiving break, so no newsletter Thursday-Saturday – back on Monday!

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IN THIS NEWSLETTER:

• A bigger role for r-star?

• Tornado Cash: Open-source code is not property

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WHAT I’M WATCHING:

A bigger role for neutral?

The talk about neutral rates is getting warmer. Over the past few weeks, we’ve seen at least two Fed officials recognize that the neutral rate is climbing. The neutral rate is that at which employment and inflation are at acceptable levels, and is also known as r-star. A few weeks ago, Dallas Fed President Lorie Logan went as far as to suggest that it might be close to where fed funds are today. Fed Governor Michelle Bowman said just last week that her expectation was that the neutral rate was “much higher than it was before the pandemic, and therefore we may be closer to a neutral policy stance than we currently think”.

This matters, since US monetary policy is deemed restrictive if fed funds are higher than the neutral rate. And Fed Chair Powell as well as many macro analysts have been insisting that policy is restrictive.

Yesterday’s release of the minutes from the recent FOMC meeting, which lowered the fed funds rate by another 25bp, showed that concern about a rising neutral rate is spreading. I’ve written before about why this would happen, and why I think it is climbing – it’s one of the main reasons I’m concerned that expectations of many more fed fund cuts are overblown.