Unfortunately, I made a serious mistake. Yesterday, a friend asked me whether Powell’s speech would be important. My answer at the time was that it was not important because it would not change the results that the Fed had already determined. However, when Powell spoke, he still shocked the market. His original words were:
"We are gradually moving policy toward a more neutral position. But the path to get there is not pre-set, and the economy is not signaling that we need to be in a hurry to cut rates. The strength we are currently seeing in the economy allows us to make decisions with caution."
This sentence is basically the key point, and it has three meanings:
First: There is no need to rush to cut interest rates
Second: The U.S. economy is performing strongly
Third: The neutral interest rate has not yet been reached
Many friends focus on the first point, that is, there is no need to rush to cut interest rates, but there is no conclusion as to whether the rush here refers to December. Previously, Anna Wang’s team also predicted that the Federal Reserve may only cut interest rates once in 2025.
This is actually in line with Powell's current attitude, that is, interest rate cuts will be slow and complementary to the economy. In other words, the better the economy, the less anxious we are to cut interest rates, and the worse the economy, the faster we should cut interest rates. So I personally think that this "no rush" is likely to be something after December.
Of course, the premise is data. Before 3 a.m. Beijing time on December 19, there will be two CPI data, one PCE data, and one non-farm data. The weights of these three data should be: the higher the unemployment rate in the non-farm data, the greater the probability of a rate cut in December; the higher the core PCE and CPI, the smaller the probability of a rate cut in December.
Currently, the probability of a 25 basis point rate cut in December has risen back to 62.1% on CME and 60% on Polymarket, indicating that more market participants still believe that there will be a 25 basis point rate cut in December, while Powell's remarks are aimed at after December.
In addition, just now, Boston Federal Reserve Bank President Susan Collins said that the Fed may eventually need to slow the pace of interest rate cuts, and said it is too early to say whether it should do so next month. A rate cut in December "is definitely under consideration, but it is not a foregone conclusion." This statement is also very consistent with the current market speculation.
And Fed's Goolsbee believes that as long as inflation continues to fall, current interest rates will be significantly reduced.
So if the interest rate is not lowered, will it be a big negative? We have talked about this before, and even Powell said this time that slowing down the pace of interest rate cuts means that the Fed's monetary policy strategy has not changed. Monetary easing is still the main trend at present, it's just a matter of sooner or later. Based on this idea, it will not cause too much impact on the US risk market. The market is still in the stage of Trump's FOMO.
And most importantly, the Federal Reserve believes that the U.S. economy is very strong, which rules out economic recession and trading recession. This is a shot in the arm for those who are panicking in the market, especially since yesterday's 13F report once again revealed that Berkshire Hathaway (Buffett) increased its holdings of U.S. stocks in Q3 ($DPZ (1.2 million shares) $POOL (404,000 shares)). So Buffett may not be reducing his holdings in Apple because he is pessimistic about the economy, but he may be just not optimistic about this track.
The direct result of the strong US economy is that the probability of a soft landing or no landing has increased, which is a good expectation for the US economy. Let me give you an example. For example, if we expect MSTR to crash in December, would you still dare to buy #BTC? Now it is equivalent to the SEC telling you that MSTR's finances are very good and there is no possibility of crashes recently. Are you more courageous to invest than the former? This is the truth now.
The third point represents that the Fed believes that the neutral interest rate has not yet been reached. What is the neutral interest rate? It is neither suppressing nor stimulating the economy. In layman's terms, it is "the extent to which the economy can ignore the Fed." Therefore, it is not difficult to see that the Fed's current strategy is to use the economy as an anchor to balance the relationship between the economy and inflation.
From my personal (not necessarily correct) point of view, first of all, the probability of a rate cut in December is at least greater than 50%. Even if there is no rate cut, it may not have a big impact on the market. Even if it is reduced by 25%, it will not have a big stimulus to liquidity. The economy is still the focus of the Federal Reserve, which includes GDP and employment data. The unemployment rate is still the focus of everyone's attention, and the second is the level of wage growth. All of them reflect the current economic situation in the United States.
In addition, the latest retail data just released is not only higher than expected, but also significantly revised up last month's data, which also shows the strength of the US economy. However, relative to #BTC, the US stock market is still falling before the opening, so the focus should still be on the trend of the US stock market after the opening. But in general, I don’t think this is a terrible thing. After all, at least the focus of cryptocurrency now is on the "Trump market" rather than the currency market.
This tweet is sponsored by @ApeXProtocolCN | Dex With ApeX
