Inflation Has Officially Been Defeated - The Fed Needs To Cut NOW

0:00Hello, everyone. Inflation just came in ice cold. Kathy Wood warns of incoming deflation. and AI Lab just became the fastest growing company ever, and we got data explaining why Bitcoin has been lagging. We're live today from the desk of Anthony Pompliano.

0:24Before we get into today's episode, I need your help. We currently have just over 44 ,000 subscribers on YouTube. Hit the button to subscribe, and let's get into today's episode. All right, ladies and gentlemen, we got the inflation numbers this morning and the experts, they're all wrong. Remember, go back to April of last year. Everyone was promising you that we were going to get sky high inflation. We're going to get empty shelves. The next great depression was right around the corner. These people have lost their minds. They were wrong. Inflation just came in at 2.4 % year over year. And that's according to the government metrics.

0:582.4 % was below the expectations at 2.5%. And so the reason why this is important is that core CPI is now at the lowest level since March of 2021. And that means that interest rates are back on the docket. Now, the reason why I find this so interesting is that the government is reporting 2.4%, but Truflation is showing you that inflation is actually closer to 0.8. I'll take the real-time alternative metric any day of the week over the government. The government doesn't know how to count. And so when we go and we take a look at this, it's all the promises of sky-high inflation never showed up. Now, why did it not show up?

1:32Well, it's because the US economy is being swallowed by these deflationary forces. We have tariffs, we have deportations, we have artificial intelligence, and we have robotics. Those four things are all deflationary. And when you combine them, we have what Elon Musk would call a supersonic tsunami that is headed towards the US economy. And so naturally, when people see that deflation is a potential risk, they start to wonder about asset prices. Now, if we go look at public.com, which is an amazing platform to be able to actually buy and sell stocks, What we see is that the S &P is up around 12 % over the last year and NASDAQ is up about 12 % as well.

2:09So even though deflation is a potential risk on the horizon, what we see is that investors, they're still pouring money in, even with the recent drawdown and performing well above the historical norms. Now, the thing to pay attention to here is if deflation actually becomes a very real risk, like we actually see us go negative on the CPI number, then all of a sudden the The government's going to have to print money and cut interest rates. And if they do that, that would be a narrative violation because historically everyone has been taught government money printing is bad. But if all of a sudden we have real scale deflation and we see prices cratering, it's great for the consumer, but you can't risk a deflationary spiral.

2:47It's going to be very interesting to watch this. But even the government now is having to bend the knee and admit inflation's coming down. Tariffs were not inflationary. and also all those experts, all those armchair quarterbacks. Tell them to go sit on the couch and chill out. Put some skin in the game. Risk your capital in the market or shh, because you were wrong and inflation is not a problem. Yesterday, I had the opportunity to sit down and talk to Cathie Wood and she says that deflation, not inflation, but deflation is coming. Take a listen to why she thinks that's gonna happen. Truflation is down to 0.8%.

3:23And so it too was stuck in that two to 3 % range. It is resolving to the downside. And I think it's going to go negative. When I see Pepsi cutting the price of potato chips and Doritos by 15%, you know, I take note. And when I hear Coke saying, yeah, it seems like there's a bit of a backlash against price increases. I take note today, the existing home price inflation rate dropped to 0.9 % on a year-over-year basis. And we think that's going to go negative. New home prices are already falling on a year-over-year basis. Gasoline prices falling. And then the good deflation is associated with technologically enabled innovation.

4:25And the AI boom is massively deflationary. The AI training costs are dropping 75 % per year. AI inference costs. So what it costs when you query chat GPT or Grok, what it costs to answer that, that's dropping. So there you have it. Truflation under 1 % and it's resolving to the downside. Pepsi cutting prices 15 % shows that consumer prices are coming down. Home price inflation under 1 % and AI training costs down 75 % year over year. That is why Kathy believes that deflation is coming. She says both consumer prices and AI costs collapsing at the same time. That price pressure is going to lead to lower prices for you and me.

5:16Everyone knows artificial intelligence is going to be a real thing, but we got a nuclear announcement from one of the leading AI labs yesterday. Anthropic says that they have raised$30 billion in funding. They did it at a$380 billion post-money valuation. Now, the reason why they did this is really important. They said the investment is going to help them deepen their research, continue to innovate in products and ensure they have the resources to power their infrastructure. Now that's a bunch of corporate speak, but you know what's not corporate speak? The numbers and the numbers are crazy. Ex-user Didi says that Anthropik is on a$14 billion run rate revenue.

5:49It's the fastest growing software business of all time. This is crazy what we're watching. Claude Code is now on a run rate of$2.5 billion and they've done that in less than 12 months. This company went from zero to a hundred million to a billion to$14 billion in just three years. Now, the number of customers that are paying at least$100 ,000 has more than 7x last year. And the customers that are paying at least a million dollars, that is 40x in the last year. They are also responsible from Cloud Code for 4 % of all GitHub commits. I mean, this is insane. We have never seen a company go from zero to a$14 billion run rate in three years.

6:28Welcome to the future, my friends. We now have AI that is actually writing more AI code, which is going to continue to lead to productivity, which is going to happen with fewer employees. And what you're going to get is more profitable companies that are growing faster, which means they're going to be more valuable than we've ever seen in the world of business. What is going on when it comes to Bitcoin, crypto, and the macro environment? Well, Binance Research just dropped a great explanation. They say that markets are in a sustained de-risking phase, and the key question is starting to shift.

7:01From how far does this go to when does demand return? Now, the honest answer is that it depends heavily on a reversal in sentiment, which for now continues to be pulled in several different directions at once. Two forces are doing most of the work, according to the research team. The first is a rotation of attention and capital away from crypto and a move towards AI and other defensive narratives. The second is policy. Expectations of hawkish Fed policy, the possibility of another partial government shutdown, and continued geopolitical and trade tensions have left the environment unreceptive to risk-taking.

7:35Now, with Bitcoin touching the lows of$60 ,000 on February 5th, and then the recovery, it becomes useful to look at where this cycle's drawdown sits relative to prior cycles. From the October 2025 all-time high, the decline is now roughly 50%. Historically, corrections of this magnitude multiple times within broader cycles. Although today, today's market structure is more institutional and liquidity channels are much deeper. But as Bitcoin consolidates, altcoins continue to lag. They are getting shellacked every day. Their underperformance has been disproportionately severe compared to prior cycles.

8:09Capital is concentrating in the largest assets like Bitcoin, and that reflects a rotation towards durability and away from speculative beta. Now, while painful for smaller tokens, this transition typically precedes stronger long-term foundations. So the supply expansion has intensified this effect. Roughly 11 million out of the 20 million tokens launched in 2025, many without users, revenue, or defensible differentiation, led to price discovery to happen entirely on hype. They are no longer actively traded. Now attention fragmented across increasingly crowded market as well. User fatigue sets in faster and projects with fundamentals have had to compete with a constant pipeline of short-lived issuance.

8:49Unsurprisingly, most of these tokens are no longer actively traded and they remain well below their initial valuations. Now, here's the interesting thing. Parts of the long tail have recently exhibited smaller percentage moves than major assets. This likely reflects the fact that much of the deleveraging and the repricing occurred earlier in the cycle, which leaves reduced marginal supply in the current phase. Rather than signaling renewed risk appetite, it may simply indicate that selling pressure becoming progressively exhausted. Now, moreover, recent market performance is not just a crypto-only phenomenon.

9:20Equity markets have also repriced risk, particularly within the software sector, following rapid advances in AI disruption and the AI narrative. The distinction for crypto markets is important. Unlike equities that were sold on disruption to specific workflows, the primary impact on crypto is less structural, and it is less structural than it is one of attention and sentiment. In prior cycles, crypto investors were accustomed to altcoin cycles delivering outsized returns while equities and commodities lagged. This cycle has presented something very new. AI-themed stocks alongside emerging markets, precious metals, and to some extent, traditional commodities, those have outperformed Bitcoin from a relative standpoint, which has created an attention and liquidity divide as capital ways competing narratives.

10:04Now, with that said, the AI disruption narrative cuts both ways. The same agentic AI systems driving technology stock divergence are among the most compelling emerging use cases for on-chain payment rails and stablecoin infrastructure. Think about AI agents transacting at machine speed, settling across borders, requiring programmable, permissionless money. The medium-term opportunity is real, even as the short-term allocation dynamic is negative. But there's more to the story too. Macro continues to be the primary driver of crypto markets, arguably more than any other point in recent years. This week's key inputs were the January jobs report and its implications for the Federal Reserve.

10:43January's non-farm payrolls came in ahead of expectations at 130 ,000, and unemployment fell to only 4.3%. On the surface, things look positive, though the fuller picture is more nuanced. Annual benchmark revisions simultaneously revealed that only 181 ,000 total jobs were created last year, roughly 15 ,000 per month. Compare that to the 584 ,000 initially reported, making last year the worst for net job creation since 2020, or if you take out recessions since 2003. January's number therefore represents stabilization within a week of environment, not the start of a meaningful recovery. That distinction matters for markets.

11:20A strong jobs report is a truly robust economy would give the Fed license to ease policy. Now, a strong number in a fragile already cooling labor market instead gives the Fed reason to stay put, which is precisely the signal markets received. Rate cuts are not imminent, and with the nomination of Kevin Warsh as the incoming Fed chair, the uncertainty around the medium-term liquidity outlook has only grown. I think that they should be cutting rates, though. Bitcoin has historically been the single most sensitive major asset to changes in global liquidity conditions in the short term, more so than even equities, gold, or any other benchmark risk asset.

11:52But in an environment where liquidity is being constrained, that sensitivity is a headwind. The same sensitivity will become a tailwind the moment that expectations shift. That's it for today's show. Thank you guys so much for watching. Please remember to subscribe on YouTube, and I'll see you guys live from the desk of Anthony Pompliano on Monday.