On June 25, Federal Reserve Chairman Jerome Powell stated during a hearing before the U.S. House Financial Services Committee that the Fed currently "has enough space to remain patient" and will not rush to adjust interest rate policy until there is a clearer understanding of the economic trajectory. This cautious stance stands in stark contrast to the strong calls from President Trump for an immediate rate cut.

Although some Republican lawmakers urged the Fed to accelerate the pace of rate cuts during the hearing, potentially taking action at the next policy meeting at the end of July, the overall atmosphere of the hearing was calm, and Powell did not face sharp questioning.

Powell pointed out that most economists, both inside and outside the Fed, still expect tariffs to push up inflation, so policymakers want to observe the actual impact in the coming months before deciding whether to adjust policy.

"We do expect that tariff-related inflation will manifest. But we are not clear on how much of that will be passed on to consumers; we need to wait and see."

In response to questioning, Powell also acknowledged that tariffs might not raise inflation as significantly as economists predict. He stated that if inflation rises less than expected, it could prompt the Fed to take action on rate cuts more quickly. Additionally, he noted that a sudden rise in unemployment could also lead the Fed to accelerate its rate-cutting pace.

Notably, Powell received bipartisan support during the meeting, with lawmakers acknowledging his efforts to balance inflation control and maximum employment goals. For a long time, Powell has emphasized that congressional support is crucial for the independent operation of the Fed. This move is also seen as an indirect response to Trump's frequent public pressure on the Fed.

The Fed's "higher rates for longer" stance has been downplayed, with the market pricing in two rate cuts within the year.

Although Powell has not budged on the issue of rate cuts, the market's interpretation has been relatively mild, and investors have already begun to price in the possibility of rate cuts later this year.

Federal funds futures indicate that traders broadly bet the Fed will start lowering policy rates in November or December. Meanwhile, recently released data showing a slowdown in employment, cooling consumer spending, and a decline in core inflation have further deepened market expectations for a shift in monetary policy. The three major U.S. stock indices continued to rise, the yield on 10-year U.S. Treasuries fell from recent highs, and the dollar index faced slight pressure, indicating that funds are gradually reallocating to more risk-tolerant asset classes.

In recent days, two important voting members of the FOMC—Governor Michelle Bowman and Christopher Waller—have indicated that as long as inflation data remains controlled, they would support a rate cut in July.

According to the CME Group's FedWatch tool, the futures market currently estimates only a 23% chance of a rate cut at the FOMC meeting on July 29-30, while the probability of a rate cut in September is significantly higher.

The expectation of a "shadow chairman" is heating up, raising market concerns about the Fed's independence.

Recently, Trump's "attacks" on Powell have intensified, with him publicly stating that he has three to four candidates in mind to replace Powell as Fed chairman when his term ends in May next year.

This statement has triggered anxiety and unease among many, as investors begin to reassess the Fed's policy independence in the coming months and beyond, fearing that a "shadow chairman" is taking shape, thereby exacerbating the trend of politicizing the Fed.

If the market believes that Trump is "remotely directing" the Fed, or even preparing to replace professional capability with political loyalty in selecting the next chairman, the Fed's policy credibility will face unprecedented pressure. Such doubts about independence will make interest rate pricing more sensitive and fragile, undermining the stability of asset prices. Especially against the backdrop of U.S. stocks at historical highs, rising dollar volatility, and gold breaking through the $3,300 mark, investors' reliance on the stability of monetary policy is unprecedented.

According to a forecast released by Morgan Stanley this Wednesday, the Fed may cut rates up to seven times by 2026, starting in March of that year, which would lower the terminal rate to between 2.5% and 2.75%. At first glance, this prediction seems extremely pessimistic, appearing to reflect a negative judgment on the economic outlook. However, if this is Morgan Stanley's forward-looking assessment of the gradual influence of a "shadow chairman" on the Fed's policy path, then the scenario of lowering rates to 2.5%-2.75% is not surprising.

Moving forward, whether the Fed can continue to maintain technical leadership and political neutrality will become one of the key variables influencing financial market trends in the second half of the year.

This year, the Fed has shown clear signs of a more relaxed attitude towards the cryptocurrency industry. In April, the Fed rescinded a regulatory letter issued in 2022, which required state member banks to obtain prior approval from regulators before engaging in activities related to crypto assets and stablecoins; the guidance document regarding the "no objection" procedure for state member banks participating in dollar token business issued by the Fed in 2023 was also abolished.

This week, Powell also made it clear that banks have the right to independently decide their customer base, and this decision does not rest with the Fed.

He stated that banks can fully provide services to the cryptocurrency industry, and cryptocurrency companies have the right to use banking services. As long as banks operate in a safe and sound manner, they can freely engage in activities related to cryptocurrencies.

Against this backdrop of regulatory easing, traditional financial institutions are accelerating their deployment of crypto business: several U.S. banks are evaluating re-entering stablecoin issuance, custody, and trading services, and institutional credit products are beginning to include crypto assets as underlying assets.

Analysts point out that this shift is an important step for crypto assets moving from the margins to the mainstream, which will promote the compliance process of the industry and create a clearer institutional order. However, while the regulatory "entry barriers" have loosened, financial stability and consumer protection remain core issues for future policy formulation.

Related: "Fiat currency is in decline"—the dollar hits a three-year low, Bitcoin (BTC) breaks through $107,000 again.

Original article: “Powell Chooses to Wait on Rate Hike Path, Fed's Stance Turns Mild, Crypto Industry Welcomes Policy Easing”

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