Gold rises, US stocks rise, cryptocurrencies soar, while the dollar continues to decline — the market has entered a long-lost but not very perceptible 'dollar down, everything up' mode. This pattern, once a positive feedback loop in the funding chain forms, can easily trigger a wave of 'ignoring fundamentals' rallies in risk assets.
Yesterday's rise was meticulously planned, and Trump continued to guide market expectations.
US Treasury Secretary Bostic issued the clearest call yet for the Federal Reserve to implement a series of rate cuts, starting with a 50 basis point cut in September, and an overall cut of 150 to 175 basis points for this round. If officials had been aware of the labor market revision data released a few days after the last meeting, they might have already cut rates.
Treasury Secretaries typically hesitate to make specific decisions about Federal Reserve rates; Bostic has indicated for months that he will only discuss past policy decisions of the Fed, not upcoming ones. However, last night, Bostic not only called for the Fed to cut rates but to do so significantly and consecutively.
Trump goes a step further, stating 'we should lower by 300-400 basis points' (which would imply bringing rates down to zero).
The stance on rate cuts is very strong, and the market is being pushed — traders expect a 100% probability of a 25 basis point cut by the Federal Reserve in September, and anticipate a total of 62 basis points across the remaining three meetings this year, compared to 59 basis points at Tuesday's close. More importantly, after Bostic suggested a 50 basis point cut, the market gave some consideration to this idea. Even if the Federal Reserve does not want to cut rates so quickly, the Treasury's statements will influence market sentiment, lower yields, weaken the dollar, and stimulate risk assets (stocks, cryptocurrencies) to rise.
It is important to note that if market expectations for a 50 basis point rate cut continue to ferment, then if the Federal Reserve announces a 25 basis point cut in September, it could actually be seen as bad news.
The Federal Reserve has countered the notion of 'significant rate cuts.'
Atlanta Fed President Bostic stated that he still expects one rate cut in 2025, and that the US is close to full employment, which provides the Federal Reserve with the 'luxurious condition' of not needing to rush into any policy adjustments.
The remarks from Trump and the Federal Reserve are extremely interesting. If one truly views this as an 'adversarial relationship,' it might seem like both sides are fighting. However, if seen as a 'script,' it resembles 'a good show': the Treasury is responsible for raising expectations and creating a bullish atmosphere, while Federal Reserve officials are responsible for dousing some cold water when necessary to prevent the market from getting out of control. This way, it can provide momentum for risk assets without overheating the market to the point of causing asset bubble panic.
It is noteworthy that after Bostic stated 'we should lower rates by 50 basis points,' the sentiment in the gold market did not reach extremes, only rising $20 from the day's opening price. However, after Bostic mentioned 'still expecting one rate cut in 2025,' gold prices experienced a slight decline.
