In the early hours of March 20, the Federal Reserve's interest rate meeting concluded, and as expected, there was no rate cut in March. The dot plot indicates two expected rate cuts for the year, and Powell chose to pause balance sheet reduction to maintain balance.
In the subsequent press conference, Powell's remarks were still non-committal; he liked to play Tai Chi. In short, this press conference was relatively neutral. Powell repeatedly emphasized that the economy is currently quite stable, inflation has not yet reached the Federal Reserve's requirements, but monetary policy will change in real-time based on conditions, which has a certain uplifting effect on market sentiment. Thus, we can see the market surge initially, then retreat. However, in the long term, the Federal Reserve's neutrality at this time may not be a good thing, and may even be bearish.
From a political perspective
We mentioned before that if the Federal Reserve releases a neutral signal, it indicates that the deep state and Trump are in a state of equilibrium. The deep state does not want the responsibility for a stock market crash to fall on its shoulders, as this would severely threaten the position of the Federal Reserve, so they are both waiting for the other to make the first move.
If the Federal Reserve does not cut interest rates, Trump will not dare to easily implement tariffs and other political actions.
If the Federal Reserve cuts interest rates, Trump will quickly execute the tariff war, but the market currently does not have excess liquidity to bear Trump's political policies, and there is only the option of the Federal Reserve providing liquidity.
And the Federal Reserve's external attitude is very clear: Trump is the main culprit dragging down the US economy. After dragging it down, come to me. Trump's attitude is that he will wait for you, Federal Reserve, to cut interest rates. If everyone loosens up, it will be win-win. I cannot bear the blame for the US economic recession, but if you, Federal Reserve, refuse to loosen up, then I will not wait.
The current result is a neutral signal, so Trump will implement the tariff war as planned on April 2. Trump has previously stated that he does not care about stock market prices; what he is doing now is to make America great again. Therefore, the Federal Reserve will only affect the speed of Trump's actions, not change his decisions. On this level, the US government is determined to wage a tariff war, to tighten, and to create a recession, while the Federal Reserve remains indifferent at this time. The final result can only be a drop in US stocks and cryptocurrencies, while gold rises.
From an economic perspective
Although the Federal Reserve has released positive signals, if we dig deeper into the pause in balance sheet reduction, we can find that actually, the Fed had already slowed down from $90 billion to $60 billion last year, which did not have much of an impact. This time, the reduction from $60 billion to $40 billion is smaller compared to the previous scale, and the Fed's total assets and liabilities are currently around $67 trillion, so this release of liquidity can be considered a drop in the bucket. It can only be said that it has a boosting effect on market confidence, but in the long term, it still faces a situation of liquidity shortages.
In the speech on the 20th, it was also mentioned that inflation expectations are rising while GDP expectations are declining, which also expresses that the Federal Reserve currently has very low expectations for interest rate cuts. It can be anticipated that in the future, particularly in 2025, monetary policy will still be relatively tight, accompanied by a downturn in the US economy.
TGA accounts and market liquidity
Recently, another point of concern is that the money in the TGA account is continuously decreasing. There are many aspects and possibilities for the decline in TGA funds, one major expenditure being military spending. The US has been very active in the Middle East recently. We previously mentioned that a ceasefire between Russia and Ukraine might not be a good thing because only after a ceasefire can the US have the money and time to turn its attention to the Middle East, especially since Trump's political camp is on the side of Israel. Trump's and Biden's political objectives are completely different, so at the beginning of his term, Trump must clean up the mess of the Russia-Ukraine war to allow the US to completely free itself from a two-front battle. We will discuss this topic in depth later.
In the case of continuous outflow of money from the TGA account, if the tariff war does not happen, the US government will really run out of money and will have to draw from bank reserves. At that time, the impact will only be greater. Recent market indications suggest that the US government is very likely drawing money from bank reserves (of course, whether the US government is indeed withdrawing from bank reserves still requires further observation). This would lead to the result that the US dollar index will rise in the coming days, US stocks will continue to decline, and BTC will follow the same trend, with further tightening of dollar liquidity in external markets. However, if the tariff war takes place, inflation will soar, which will also lead to tightening. Recession and decline have become the current main theme.
Summary
The monetary policy drama in March has come to an end, with Powell maintaining a neutral stance to protect himself, which has disappointed market expectations and once again proved that you should not go against the Federal Reserve; you always lose. Currently, from both economic and political perspectives, the instability of geopolitical factors, internal divisions within the US government, tightening monetary policy, and various issues overlapping means that the future market outlook still sees no signs of recovery. The current strategy can only be to sift through the primary market, while the secondary market can only short. No matter what, manage risks, protect your principal, and wait for the flowers to bloom.
