$USDC

#Powell's Speech#

A 71% probability is a strong signal. This usually means that the market has fully digested the current information and tends to believe that inflationary pressures are gradually easing, creating conditions for the Federal Reserve to start a rate cut cycle in the second half of the year. Powell has pointed out that the Federal Reserve will continue to wait and see, waiting for more data guidance. If the upcoming CPI and other employment data continue to show that inflation is gradually falling back and the labor market remains resilient rather than overheated, the possibility of a rate cut in September will be further consolidated.

Powell mentioned that this year's inflation expectations are higher than in September 2024, mainly due to the pressure from tariffs. This suggests that inflation may have some stickiness. If future inflation data rebounds more than expected, or the labor market performs too strongly, the Federal Reserve may still postpone rate cuts, or even remain unchanged in September, to ensure that the inflation path is in line with its long-term target of 2%.

Even if rate cuts begin in September, the expectation of rate cuts in 2026 being adjusted from 50 basis points to 25 basis points suggests that the Federal Reserve's pace of rate cuts will be moderate and cautious, rather than aggressively loose. They will gradually adjust according to economic data to avoid premature easing leading to inflation rebounding. It is inclined to believe that the Federal Reserve is very likely to start its first rate cut in September, but the subsequent path of rate cuts will be gradual and data-dependent.

If the Federal Reserve confirms a rate cut in September, the dollar may be under pressure due to the narrowing interest rate differential, especially if other major central banks maintain high interest rates or cut rates later. The market will reflect this expectation in advance. Although rate cuts may bring short-term pressure, if the US economy continues to outperform other major economies and the Federal Reserve's pace of rate cuts is slower than expected (such as the slowdown in rate cuts in 2026), the dollar may still maintain some resilience in the future, and even gain support when risk aversion sentiment rises. Powell's expectation of 'higher interest rates maintained for longer' may strengthen this resilience.