Chairman Powell met the expectations of risk markets with a 50 basis point rate cut, but for choosing a more substantial rate cut this time, he also confidently emphasized that a soft landing of the economy remains the basic scenario, and repeatedly reiterated that the U.S. economic performance is "quite good."

Key Summary:

• With inflation falling, a soft landing remains the base case. " The U.S. economy is in good shape, and our decision today is to keep it that way." "The U.S. economy is basically fine." "I believe inflation will fall to 2%."
• Staying Ahead. Powell pledged to “stay ahead” in rate adjustments in response to the slowdown in the job market, with a particular focus on hiring rates ( the 50 basis point rate cut is our commitment not to fall behind ). The Fed raised its unemployment rate forecasts to 4.4% in 2024 (from 4.0%), 4.2% in 2025 (from 4.0%), and 4.3% in 2026 (from 4.1%).
• The 50 basis point change is intended to convey a "powerful move." Powell acknowledged that a 50 basis point adjustment is a strong move, but he also said that it will not necessarily proceed at the same pace in the future ("We should not assume that this is the new normal"), leaving room for maneuver in future Fed meetings. Basically, don't expect 50 basis point adjustments all the time, nor do you expect a 75 basis point rate cut, but the Fed may also make multiple 50 basis point adjustments if economic data proves it necessary ("We will always do what we think is good for the economy at the moment, and today's decision is no exception.").
• The key lies in hard data. The Fed will focus on hard economic data rather than soft sentiment data, and will pay special attention to the market's reaction to lower interest rates.
• We are united in our stance. Powell noted that all 19 members agreed that there should be multiple rate cuts this year, with 17 members believing there would be three full rate cuts and two members believing there would be four, which was a "significant difference" from June. The only dissenter was Bowman, who supported only a 25 basis point cut this time.

Market reaction:

• Interest rates: The market still expects 2.5 more rate cuts in 2024, slightly ahead of the Fed's dot plot median. Bond yields barely moved after the FOMC meeting as the results were largely in line with expectations.
• Foreign Exchange: The Fed's decision led to a weaker dollar, especially considering that the Bank of Japan is likely to maintain a hawkish stance at its upcoming meeting, with the dollar weaker against the yen.
• Stocks: Stocks rose as the Federal Reserve implemented "forceful" easing policies and said economic conditions remained good and inflation was expected to fall.
• Cryptocurrency: Benefiting from the strong rise in the stock market, BTC rebounded to $60k, and altcoins also performed strongly, indicating that the overall risk sentiment has improved.

#Cryptocurrency #Volatility #Options #GBTC #MSTR #Macroeconomics