In the early hours of September 18, Beijing time, the Federal Reserve initiated its first rate cut of this round as the market expected. However, unlike the past "turning on the faucet" approach, this time it opted for a modest reduction of 25 basis points in the federal funds rate, signaling a clear cautious stance in its policy path. Among the three major U.S. stock indices, the S&P 500 and Nasdaq both reached historic highs during the session, led by heavyweight stocks like Apple and Tesla, while crypto assets, which are highly correlated with risk appetite, struggled to maintain momentum after the news broke and subsequently entered a phase of sideways consolidation. With macro rates entering a downward cycle, why has the "liquidity imagination" that should have been ignited not immediately manifested in crypto assets?

Rate Cut Announcement and Market Initial Reaction

● News Driven:
● The FOMC decided to lower the target federal funds rate range from 5.25%–5.50% to 5.00%–5.25%, marking the first official rate cut since the pandemic crisis in 2020, and signaling the end of a two-year aggressive rate hike cycle.
● The statement retained a high level of vigilance regarding inflation and emphasized that "the future path still depends on data," without committing to continuous rate cuts, thus downplaying the market fantasy of "unconditional easing."

● Dot Plot and Expectation Gap:
● The latest dot plot indicates that the median total rate cut for 2024 is about 50 basis points, significantly lower than the previous market bets of "75–100 basis points."
● In the 2025 dot plot, the medium to long-term interest rate center remains around 2.5%, suggesting that "high rates will be maintained for a longer time," which significantly deviates from the expectation of a "quick return to zero interest rates."

● Funding Pricing and U.S. Stock Performance:
● Interest rate futures were quickly repriced before and after the meeting, with the probability of a second rate cut this year being compressed, but the 25bp cut had already been fully priced in, thus not triggering a sharp collapse in U.S. Treasury yields.
● Under the resonance of liquidity and technology growth logic, the S&P 500 and Nasdaq reached historic highs during the session, with large tech stocks and growth stocks leading the way, as the market viewed the rate cut as a "reconfirmation of a soft landing for the economy."

● Crypto Market's "Cold Reaction":
● Prior to the meeting, crypto assets had already rebounded in line with risk assets, and the favorable expectations for rate cuts were adequately reflected in the prices of mainstream coins. When the official announcement was made, the market exhibited more of a "profit-taking" high-level fluctuation.
● Some contract indicators showed that long leverage slightly cooled, and funding rates fell, indicating that short-term funds tended to "secure profits first" around the news.

The Deeper Implications of the Federal Reserve's Path and Rate Cycle

This first rate cut is not an isolated event but mirrors the "fastest rate hike cycle in history" of the past two years: as inflation recedes from high levels and economic data weakens marginally, the Federal Reserve must find a new balance between "anti-inflation" and "growth preservation." Briefing information indicates that core inflation has been declining from its peak for several months, but there is still a significant distance from the long-term target of 2%; meanwhile, although there has not been a cliff-like deterioration in the job market, signs of slowing hiring demand and cooling wage growth are accumulating. The Federal Reserve's choice to implement a "small step exploratory rate cut" at this time is essentially a preventive hedge against the "side effects of high rates," rather than a "firefighting" measure like in 2008. This suggests that rates will slowly decline from their peak, but long-term real rates may remain relatively high, thereby continuously impacting the valuation and risk premium of various assets. For crypto assets, this "slow decline + high level" interest rate structure not only weakens extreme risks but also suppresses the reckless expansion of unconstrained liquidity, pushing funds to gradually return from pure liquidity speculation to a repricing based on application, profit models, and safety.

Bullish and Bearish Views: The Next Stop for Risk Assets

● Optimistic/Supportive Side:
● They believe this rate cut is a clear signal of a shift from tightening to easing, and even if the pace is moderate, it represents a marginal improvement in liquidity and a peak decline in financing costs, which is favorable for all risk assets in the medium to long term.
● They point out that historically, most "first rate cuts" lead to excess returns in U.S. stocks and high-beta assets within a few months, and crypto assets, as a vehicle for amplified risk appetite, are expected to gain stronger resilience after subsequent "second and third rate cuts."
● They believe the dot plot is hawkish and the wording cautious, which is itself to avoid "overly loose financial conditions." If inflation continues to decline and the economy does not show significant slowdown, the Federal Reserve could accelerate the pace of rate cuts in 2025, compensating for the current "caution."

● Pessimistic/Opposing Side:
● They are concerned that this rate cut is more based on "expectations of future growth slowdown" rather than a simple victory declaration: if economic data weakens further, corporate profits and household balance sheets come under pressure, risk assets may first experience a round of valuation repricing.
● They emphasize that the dot plot's downward adjustment is limited, and the market's previous bets on "rapid easing" have been falsified, with real rates remaining high for a longer time, which will continue to raise the discount rate for risk assets and suppress upward valuation space.
● For crypto assets, in the context of limited institutional risk budgets, high regulatory pressure, and rising compliance costs, incremental funds are more likely to flow first to mainstream assets like U.S. stocks, rather than the more volatile crypto market.

In the short term, the market will continue to speculate on the timing of the Federal Reserve's "second and third rate cuts" based on subsequent inflation and employment data: if core inflation continues to decline in the next two to three months and employment data remains moderately cooling, U.S. Treasury yields are expected to further decline, benefiting the valuation recovery of high-risk assets, including crypto assets; conversely, if inflation proves stickier than expected and the economy shows signs of "stagflation," the market may reprice for "longer periods of high rates," putting pressure on the funding and risk appetite in the crypto market. In such a macro environment, the medium to long-term performance of crypto assets will increasingly depend on real application scenarios, on-chain yields, and compliance progress, rather than solely on the catalysis of the interest rate cycle.

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