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Current market situation shows
The Bank of Japan's monetary policy meeting on the 19th is highly likely to maintain the status quo.
Moreover, the Federal Reserve's monetary policy meeting on the 20th is also unlikely to adjust interest rates.
However, the market has quietly begun to anticipate that the Federal Reserve may pause its balance sheet reduction on the 20th, and there is even a possibility that this expectation could be reflected as soon as the market opens on Monday.
Especially with the smooth resolution of the U.S. government shutdown issue over the weekend, a strong boost has been injected into the market. In addition, Polymarket data shows that the probability of the Federal Reserve stopping the balance sheet reduction before May has soared to 100%, which is a signal worth noting.
This may imply multiple deeper meanings: on one hand, it may indicate that the Federal Reserve holds an optimistic view on the inflation outlook, believing that inflation is within a controllable range and there is no need to continue applying pressure through aggressive balance sheet reduction; on the other hand, it may also reflect the Federal Reserve's concerns about tariff factors triggering risks of economic recession, thus preemptively hitting the brakes on balance sheet reduction.
Next, the upcoming dot plot and Powell's speech will undoubtedly become the "catalyst" for market volatility, akin to a high-stakes gamble. The market faces numerous variables: cutting rates three times while simultaneously pausing balance sheet reduction, cutting rates three times but continuing balance sheet reduction, cutting rates twice paired with pausing balance sheet reduction, cutting rates only twice while still reducing the balance sheet, or even cutting rates less than twice, all of which will pose significant tests to market sentiment.
If the rate cut is substantial and balance sheet reduction is paused, it may reflect underlying concerns about economic recession; whereas if the rate cut is small and balance sheet reduction continues, it may seem that there is little regard for recession risks, but how inflationary pressures are alleviated will leave investors in a dilemma.
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