Macroeconomic Interpretation: In the early hours of today, 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 marks the third rate cut following those in September and November, highlighting the Fed's delicate balance in responding to slowing economic growth and inflationary pressures. This article will combine the latest online news to deeply interpret the Fed's rate cut decision and the policy signals in Powell's speech, and explore its impact on the cryptocurrency market.
Rate Cut Decision and Hawkish Tendencies: The Fed's decision to cut rates by 25 basis points aligns with market expectations, but the policy signals released during the meeting are 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 tendency in the Fed's monetary policy.
The latest dot plot shows that policymakers expect two rate cuts in 2025, while the September forecast for rate cuts next year had reached four at one point. This change reflects a slowdown in the pace of rate cuts by the Fed and a cautious attitude towards future economic prospects. Among the 19 officials, 14 expect two or fewer rate cuts in 2025, with only five members anticipating more than two cuts next year, further reinforcing the Fed's hawkish stance.
Balancing Economic Growth and Inflation: Powell emphasized in his speech that the Fed is trying to find a balance between slowing economic growth and inflation control. He pointed out that acting too slowly could weaken economic activity in the labor market, while acting too quickly could undermine the progress made in controlling inflation. Therefore, the Fed will rely more on data-driven approaches to formulate monetary policy rather than preset paths.
Despite the challenges, Powell expressed confidence in the performance of the U.S. economy. He used terms like "solid," "strong," and "resilient" to describe the current economic situation. However, he also acknowledged that real estate activity is weak, and while consumer spending remains resilient, overall economic activity is slowing. At the same time, inflation is closer to the 2% target but is still expected to take one to two years to reach it.
Uncertainty and Impact of Trump's Policies: Powell also mentioned the potential policy uncertainty that may arise from the incoming Trump administration. Trump promised during his campaign to implement aggressive tariff plans, which economists generally believe could lead to a resurgence of inflation in the U.S. Powell stated that some members of the Federal Open Market Committee have begun preliminary assessments of the potential impacts of Trump's policies, but it is still too early to draw conclusions about how they will affect inflation.
The policy uncertainty from the Trump administration presents additional challenges for 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 Fed to alter the pace of rate cuts. This uncertainty has made the market more cautious about the Fed's future policy direction.
Impact on the Cryptocurrency Market: The Fed's rate cut and Powell's speech have had a significant impact on the cryptocurrency market. The rate cut decision met market expectations, but the hawkish language and upward revision of inflation expectations caused turbulence in the market. Major cryptocurrencies such as Bitcoin, Ethereum, and various altcoins experienced significant price corrections.
After the announcement of the 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 like Solana and Dogecoin also fared poorly, dropping over 7% and 8%, respectively. The volatility in the cryptocurrency market led to a large number of liquidations among traders, reflecting the market's unease.
The sharp decline in mainstream cryptocurrencies like Bitcoin reflects the market's concerns about future inflation and the uncertainty surrounding Fed policies. However, in the long term, the cryptocurrency market still holds significant potential. This correction creates potential opportunities for future rebounds.
The Fed's rate cut decision and Powell's speech released numerous policy signals, demonstrating the Fed's delicate balance between economic growth and inflation control. The hawkish tendencies and uncertainty surrounding Trump's policies present additional challenges for the market, making it more cautious about the Fed's future policy direction. For the cryptocurrency market, the Fed's rate cut decision and policy signals triggered significant market turbulence. However, in the long term, the cryptocurrency market still possesses great development potential. Investors should closely monitor the Fed's policy direction and the dynamic changes in the cryptocurrency market to timely adjust their investment strategies and seize market opportunities.
BTC Analysis:
In yesterday's article, we focused on interpreting the "hawkish rate cut by the Fed" and Powell's hawkish statements, with BTC falling to a short-term support level near $99,200 as analyzed on Monday and Tuesday. This is also near the first trendline support, with the next trendline support around $96,800.
At 3 AM today, the Fed's decision to cut rates by 25 basis points met expectations. However, importantly, the wording of the meeting statement has been adjusted, reflecting changes in the FOMC's consideration of the pace and magnitude of future policy implementation. There were also divergences in voting, with some members opposing a rate cut in December. The economic forecasts clearly reflect concerns about inflation risks, and the Fed's risk balance has evidently shifted back towards inflation. The dot plot only hints at two rate cuts next year, showcasing an absolute hawkish tendency. Powell is cautious about further rate cuts, leaning towards a hawkish stance.
After the meeting, the dollar surged, while U.S. stocks, gold, and Bitcoin all saw significant declines.
The hawkish statements and positions have weakened expectations for the future path and level of rate cuts, meaning that the magnitude and frequency of rate cuts may decrease, and future rates could remain at relatively high levels. This is the core logic behind this round of declines, while Powell's comments regarding Bitcoin reserves are merely a small catalyst. The significant declines in the three major U.S. stock indices also clearly indicate that the market's core logic is still a reaction to the strengthening dollar.
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