On financial radars today, May 15, 2025, there were several hotspots. While the market digested a batch of fresh economic data and news about individual stocks and tariffs, far from trading floors, in Washington, the Federal Reserve held its "open house" for economic minds – the Second Research Conference of Thomas Laubach. And Chairman Jerome Powell spoke there about fundamental things: the review of the Fed's very strategy. And this, believe me, is much more important for long-term impacts on all assets, including cryptocurrencies, than momentary fluctuations.
The Fed in the rearview mirror: When reality proved to be "not moderate at all"
So, the Fed is conducting a scheduled (once every five years, no joke!) review of its "strategy, tools, and communications." Why? Powell is very honest: "The economic environment has changed significantly since 2020." Recall that the monetary policy framework adopted then was tailored to a reality of low rates, low inflation, and the main headache of avoiding the so-called zero lower bound. However, life made its adjustments in 2021-2022, throwing in a surprise in the form of inflation, which, as Powell himself admitted, turned out to be "not moderate at all."
It is precisely this experience – the experience of a turbulent inflationary surge that followed the adoption of the 2020 strategy – that the Fed is actively analyzing right now. At the conference on May 15, 2025, it is mentioned that the lessons of recent years compel the regulator to critically reassess those very formulations from the 2020 strategy. Powell states directly: "It is necessary to revise strategic language regarding both 'lags' (rather than 'deviations') in employment and 'average inflation.'" Analysts note that the shift in focus to "lags" in 2020 may have contributed to a slower response to inflation. Now, having learned from experience, the Fed seems to have decided to adjust its "lens" and revise these points to be better prepared for future inflationary challenges.
Key points and focus of the review:
In addition to reflecting on the past, Powell outlined other directions of the current review:
The Fed is conducting a two-day review of its strategy adopted in 2020.
The goal is resilience: Powell emphasized: "We will ensure that our new coordinated statement is resilient to a wide range of economic conditions and events." The foundation of monetary policy must be reliable, especially in a world where supply shocks may be more frequent and prolonged.
Lessons from the inflation shock: The idea of moderately exceeding the inflation target after periods of weakness has become irrelevant due to the recent price surge.
Accounting for new realities: The review will take into account changes in inflation dynamics, labor market behavior, and the decreased likelihood of reaching the so-called zero lower bound, although this risk still needs to be considered.
Unchanging principles: Certain aspects of the Fed's approach are constant. Focus on anchoring long-term inflation expectations around 2% was a key consideration in 2020 and remains critically important. "Anchored expectations are critically important to everything we do, and we remain fully committed to the 2% target today," Powell stated.
Improving communications: Improvements in the Fed's communications are also being considered to better convey information about forecasts, uncertainties, and risks. This, by the way, directly concerns us, investors – the clearer they communicate, the less the markets react (in theory!).
Completion timelines: The Fed plans to complete its current strategy review by the end of summer. We await with popcorn.
Economic data from Thursday: When expectations clash with reality (and is that a bad thing?)
While Powell was philosophizing about high matters and past experiences, fresh economic data brought some turmoil (or clarity?) to the markets. And this data turned out to be... interesting. They came out just before or at the beginning of his speech, adding context for the discussion.
Producer Price Index (PPI): Analysts expected a rise of 0.2% m/m in April. The market received... a decline of 0.5%. This is the first decrease since October 2023 and the strongest since April 2020 (remember what happened in April 2020? Exactly). Core PPI (excluding food and energy) also surprised, dropping by 0.4% against an expected increase of 0.3%. Annual rates also slowed down (overall PPI to 2.4%, core to 3.1%). Analytical view: Soft PPI is great news for those waiting for rate cuts. It indicates that inflationary pressure "at the entry" into the economy is weakening. A decrease in services, especially trade margins, hints that companies may have started to "absorb" some costs (the ones from tariffs that are actively discussed) instead of passing them on to consumers. This somewhat dissonates with Powell's concerns about potentially more volatile inflation due to supply shocks, but currently plays in favor of the "doves" at the Fed and supports hopes for policy easing.
Retail sales: Here it's less straightforward. The overall figure rose by 0.1% m/m (slightly better than forecasts), but the control group, which goes directly into GDP calculations, unexpectedly declined by 0.2% (against an expected increase of 0.3%). Analytical view: This is not a collapse, but not a boom either. Consumers seem to have exhausted themselves after the March surge. Perhaps they are being cautious due to those tariffs or simply reallocating their budget. In any case, these figures do not show strong inflationary pressure from demand.
Initial unemployment benefit claims: No change (229,000), as expected. Analytical view: The labor market remains stable, which aligns with the Fed's assessments. Good news for employment, but not something that would scream for urgent rate cuts to support the economy.
Manufacturing sector: Business activity indices in New York and Philadelphia are still in contraction territory (-9.2 and -4.0 respectively), although Philadelphia showed significant growth and positivity in new orders. Industrial production as a whole is stagnating (0.0% m/m), while manufacturing output actually fell by 0.4%. Analytical view: The factory sector is not shining at the moment. This is more of an argument for potential easing rather than tightening.
Market reaction: Dollar down, stocks up (after a brief pause)
And how did the nervous markets react to all this (to Powell, to the data)?
Stock futures/indices: In the morning, futures on major indices were slightly down, preparing for the worst and awaiting Fed data/speeches. But soft PPI and retail sales caused them to "trim" losses. At the market open, major indices were down about 0.3%, but then turned positive on the data. By the end of the day, the S&P 500, Nasdaq 100, and Dow rose by about 0.5%. The leading sectors were more "defensive" ones like industrial companies, utilities, and pharmaceuticals, which may be related to both reassessing risks after the data and specific corporate news.
Individual stories: Apple shares dipped slightly after a biting comment from Trump (yes, politics still matters!), while UnitedHealth plummeted (over 7%, then 15% for the day) due to news of a Justice Department investigation regarding Medicare. Walmart initially fell due to a warning about potential price increases due to tariffs but then partially recovered. Meanwhile, GE and Cisco pleased with gains following their news.
Bond yields: The yield on 10-year Treasuries fell to 4.45% after reaching a three-month high earlier. This makes sense: soft inflation hints at a possible Fed rate cut, making existing bonds (with their fixed yields) more attractive, pushing prices up and yields down. By the way, the market has already revised expectations, now pricing in two Fed rate cuts by December instead of the four that were predicted last week (remember the trade between the US and China and its impact on growth forecasts and rates?).
US Dollar (DXY): The dollar index also retreated to 100.7. Softer inflation data and mixed retail sales data weaken arguments for maintaining high rates, which is generally negative for the currency. Plus, let’s not forget about rumors that the administration (apparently a hint at a future Trump administration) may advocate for a weaker dollar in trade negotiations – another "bearish" factor for USD.
In summary for crypto enthusiasts:
What does all this mean for us, citizens of the crypto world?
The Fed's strategy is adapting: Powell and Co. are actively analyzing past mistakes (primarily the underestimation of inflation in 2021-2022) and preparing for future challenges (supply shocks). The review aims to increase the flexibility and reliability of their approach.
Data outweighed rhetoric (today): Despite Powell's cautious words about potential inflation volatility, the fresh PPI and retail sales data were soft enough to support market hopes for a soon (though possibly moderate) rate cut by the Fed.
Markets vote with their feet: The bond market and the stock market interpreted the data as a signal for potential policy easing, leading to lower Treasury yields and rising stocks (after some morning nervousness). A weakening dollar is traditionally seen as a positive factor for risk assets, including cryptocurrencies.
Of course, one day, one speech, and one set of data do not define everything. The Fed will complete its review only by the end of summer. But signals have been sent. And judging by the market's reaction to the fresh data, the nervousness about inflation has somewhat subsided, giving way to hopes for a soon, albeit moderate, easing of policy. Now we just have to wait for summer and see what specific wording the Fed chooses and how it will be perceived by the crypto community. For now, we keep an eye on the charts and await new data and comments.
