Macroeconomic interpretation: Early this morning, the Federal Reserve announced its last interest rate decision of the year, lowering the target range for the federal funds rate by 25 basis points to 4.25%-4.5%. This is the third interest rate cut following September and November, marking the Federal Reserve's subtle balance in responding to slowing economic growth and inflation pressures. We will deeply interpret the Federal Reserve's interest rate cut decision and the policy signals in Powell's speech and discuss their impact on the crypto market.
Interest rate cut decision and hawkish inclination: The Federal Reserve's interest rate cut of 25 basis points met market expectations, but the policy signals released during the meeting were filled with complexity. Powell repeatedly mentioned a 'more neutral setting' and a 'cautious' attitude towards further rate cuts during the press conference, indicating a hawkish inclination in the Federal Reserve's monetary policy.
The latest interest rate dot plot shows that policymakers expect to cut rates twice in 2025, while in September, the prediction for the number of rate cuts next year had reached four. This change reflects the Federal Reserve's slowing pace of rate cuts and a cautious attitude towards future economic prospects. Among the 19 officials, 14 expect to cut rates two times or less in 2025, with only five members expecting to cut rates more than twice next year, further reinforcing the Federal Reserve's hawkish stance.
Balancing economic growth and inflation: Powell emphasized multiple times in his speech that the Federal Reserve is trying to find a balance between slowing economic growth and controlling inflation. He pointed out that acting too slowly could weaken economic activity in the labor market, while acting too quickly could undermine the progress the Federal Reserve has made in controlling inflation. Therefore, the Federal Reserve will rely more on data-driven decisions to formulate monetary policy, rather than a preset path.
Despite facing challenges, Powell expressed confidence in the performance of the US economy. He repeatedly used terms like 'solid', 'strong', and 'resilient' to describe the current economic conditions. However, he also admitted that real estate activity is weak, and while consumer spending remains resilient, the overall growth rate of economic activity is slowing. At the same time, inflation is closer to the 2% target, but it will still take one to two years to reach that goal.
Uncertainty and impact of Trump's policies: Powell also mentioned the potential policy uncertainties that may arise from the incoming Trump administration. Trump promised during his campaign to implement aggressive tariff plans, and economists generally believe this could lead to a resurgence of inflation in the US. Powell stated that some members of the Federal Open Market Committee have begun to conduct preliminary assessments of the potential impacts of Trump's policies, but it is still too early to conclude how they will affect inflation.
The policy uncertainty of the Trump administration has brought additional challenges to the market. On one hand, tax cuts and tariff policies could stimulate economic growth, but on the other hand, they could also exacerbate inflation, forcing the Federal Reserve to change the pace of interest rate cuts. This uncertainty makes the market more cautious about the future direction of Federal Reserve policies.
Impact on the crypto market: The Federal Reserve's interest rate cut and Powell's speech had a significant impact on the crypto market. The interest rate cut decision met market expectations, but the hawkish rhetoric and the upward revision of inflation expectations brought volatility to the market. Major crypto assets such as Bitcoin, Ethereum, and various altcoins saw significant price corrections.
After the announcement of the interest rate cut, Bitcoin's price quickly fell by about 5.6%, briefly dropping below $99,000. Ethereum performed even weaker, with a decline of nearly 7%. Other altcoins such as Solana and Dogecoin also had dismal performances, sliding more than 7% and 8%, respectively. The volatility in the crypto market led to a large number of traders being liquidated, indicating market unease.
The sharp decline of Bitcoin and other mainstream crypto assets reflects the market's concerns about future inflation and the uncertainty of Federal Reserve policy. However, in the long run, the crypto market still has tremendous potential. This pullback creates potential opportunities for future rebounds.
The Federal Reserve's decision to cut interest rates and Powell's speech released numerous policy signals, demonstrating the subtle balance the Federal Reserve is maintaining between economic growth and inflation control. The hawkish inclination and the uncertainty of Trump's policies have posed additional challenges to the market, making it more cautious about the future direction of Federal Reserve policies. For the crypto market, the Federal Reserve's interest rate cut decision and policy signals triggered significant market volatility. However, in the long run, the crypto market still has substantial development potential. Investors should closely monitor the Federal Reserve's policy direction and the dynamic changes in the crypto market to timely adjust their investment strategies and seize market opportunities.
Analysis:
In yesterday's article, we focused on interpreting the 'hawkish interest rate cut from the Federal Reserve' and Powell's hawkish statements. BTC also fell to the short-term support level near $99,200, as I analyzed on Monday and Tuesday. This is also near the first trendline support, with the next trendline support around $96,800.
Early this morning at 3 a.m., the Federal Reserve's interest rate cut of 25 basis points met expectations. However, it is important to note that the language of the meeting statement was adjusted, reflecting changes in the FOMC's consideration of the implementation pace and magnitude of subsequent policies. There were also divergences in voting, with some members opposing the rate cut in December. Economic forecasts clearly reflect concerns about inflation risks, and the Federal Reserve's risk balance has evidently shifted back towards inflation. The dot plot only suggests two rate cuts next year, demonstrating an absolute hawkish inclination. Powell's caution regarding further rate cuts and his hawkish statements.
After the meeting, the US dollar surged, while US stocks, gold, and Bitcoin all saw significant declines.
Hawkish statements and expressions have weakened expectations for future interest rate cut paths and levels, meaning that the magnitude and number of cuts will decrease, and high-interest rates may be maintained in the future. This is the core logic behind the current decline, while Powell's comments on Bitcoin reserves are just a minor catalyst. The significant drop in the three major US stock indices also clearly reflects that the core logic of the market is still a response to the strengthening dollar.
