Trump's sudden maneuvers have thrown an already complicated economic situation into complete chaos. The sudden attack of tariffs not only caught the market off guard but also forced the Federal Reserve into a position where there is no good option. Now Powell's troubles have arrived: on one side is the rising risk of inflation, and on the other is the obvious concern of slowing growth. To cut or not to cut? No matter how they choose, half the people are ready to criticize.
For more than a year, the Federal Reserve has adhered to a 'hard stance' strategy: if inflation does not meet standards, they will never cut rates. However, now Trump's trade policy seems like a deep-water bomb, splattering inflation expectations all over the place. If the Federal Reserve cuts rates too early, it might fuel price increases and the specter of inflation could return; but if they continue to maintain an 'unmoved' posture, the consequences of an economic slowdown might be hard to manage.
In fact, Powell and his team are well aware that the risks of cutting rates early are much higher than delaying action. The painful lessons of the past two years are likely not something the Federal Reserve will forget anytime soon. So, although Federal Reserve officials do not say it out loud, they are definitely thinking: 'I would rather be criticized for being conservative than be slapped in the face by inflation again.'
However, the market does not care about these complexities. Trump's Twitter is calling for a 'quick rate cut' every day, and traders are frequently betting on the Federal Reserve's next move. Last week's non-farm data was suddenly strong, U.S. Treasury yields soared, and rate cut expectations were quickly pushed back, leaving the market in confusion: should they believe Trump's predictions of recession or the economic resilience shown in the data?
Former Federal Reserve official Lael Brainard said quite frankly: "The Federal Reserve has always been a see-it-to-believe-it institution; they will only act hastily when the job market really faces significant issues." In other words, Powell's script is to wait until employment and consumption data clearly deteriorate before openly initiating a rate-cutting mode. Although 'passively' waiting may not seem very smart, at least it ensures that they will not fall into a pit again due to hasty actions.
The current market consensus is very clear: a rate cut in May is almost impossible, with a probability close to zero. As for June? Only if economic data suddenly changes drastically in a few weeks, with inflation significantly falling back, or if non-farm employment directly collapses, could the probability of a rate cut increase. However, even in that case, the probability would only be between 20% and 30%.
What about the Bitcoin market? BTC investors have recently been quite frustrated, as everyone has realized that the Federal Reserve's 'holding out till the end' tactic has temporarily deprived Bitcoin of a clear catalyst for an increase. As long as Powell remains noncommittal, market funds will naturally not flow into the cryptocurrency market on a large scale.
But rest assured, this awkward situation will not last forever. Once the key data in May and June (especially CPI and non-farm employment) come out, the Federal Reserve will ultimately be forced to face the music. At that time, the market could instantly reverse — if the economy indeed weakens, it won't matter how tough the Federal Reserve talks, market liquidity will quickly return, and Bitcoin is very likely to seize the opportunity to restart its upward trend.
In summary, what investors should do now is to remain patient and closely monitor the upcoming economic data, rather than fixating on Trump's Twitter posts every day. After all, the Federal Reserve is not run by Trump, but market sentiment is always much quicker than Trump's words.
