Currently, the fact that the Federal Reserve is not lowering interest rates is actually the biggest support for the US stock market and BTC. When soft data weakens but hard data has not come down, Powell says to only look at hard data and not soft data, while emphasizing "no preemptive actions", which makes people feel that the Federal Reserve may take action later than necessary. Those in the know understand that "going against the wind" is the old principle of the Fed, which means they need to stay ahead of the economic cycle. But now, this statement seems to suggest that the Fed is willing to abandon this principle in the face of uncertainty, only waiting for an economic downturn or inflation to rise before acting based on lagging data? I think that might not be the case.
The popular saying in the market is that the Fed is in a dilemma, uncertain whether tariffs will continue to push inflation up, and unclear whether the economy will weaken due to macro uncertainty. But based on my years of trading based on interpreting Fed statements, even though Powell often emphasizes "unknowns" and "wait and see", this statement is not about "indecision". Powell knows better than us how to assess the impact of tariffs, just like he understands the long-term inflation expectations calculated by market trading, and he also values the forecasts from importers. Businesspeople generally feel that tariffs will bring about a 20-30% price increase pressure, which signals inflation; at the same time, from consumption data, demand has not weakened at all.
The term "waiting" actually hides two layers of meaning: first, the impact of tariffs on inflation may be temporary; second, the resilience of the US economy is much stronger than the weakness indicated by soft data (like sentiment indicators and freight data). Powell certainly understands this, but without ready evidence to prove it immediately, the risk of speaking up is too great, and it is too far from market consensus, so he can only "wait"—waiting for the market to see hard data overturn soft data, or for soft data to correct itself.
This kind of "waiting" has instead become the biggest boon for the US stock market and BTC. Because the Fed is not taking action, it is because the economy is strong enough, not because inflation is too stubborn. Speaking in terms of the stock market, it means the fundamentals are solid, and at the same time, the Fed has 425 basis points of policy space to cope with future recessions. I think there’s no better state than this.
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