Let’s talk about two things that influenced the market in the past day.
The first is the ceasefire between Israel and Iran.
Suddenly, the two stopped fighting, although they didn’t adhere to the agreement and fired a few more missiles, they still halted. As I joked yesterday, several major countries, including the markets, feel like they’ve won.
The ceasefire has temporarily cooled oil prices and safe-haven sentiments, and global capital markets are rising; it seems that after a battle, it’s a positive for the world, which caused a drop in crypto.
However, looking at the medium to long term, the chaos in the Middle East may not be over. Has Iran's nuclear issue really been resolved? This morning, CNN reported that someone revealed that the U.S. strikes only delayed Iran's nuclear program by a few months, without completely destroying it. Trump criticized CNN, saying they were slandering what was possibly the most successful military operation in history. It’s hard to determine what’s true and what’s false. In any case, Iran certainly won’t say. If they truly weren’t destroyed, and the outside world thinks they were, Iran would actually be happier. Israel is the most panicked; a day after the U.S. bombed, Israel sent planes to bomb again, likely to check whether it was truly destroyed. But it probably wouldn’t be effective; it’s impossible to see from looking. Observing the situation regarding nuclear radiation might be more reliable.
If nothing was really destroyed, I wonder if, months later, both sides will take a break and then resume hostilities. Or perhaps both sides are currently preparing for a break, ready to clash again at any time, and then they might truly attack the accounts of crypto investors again.
But there's no need to be overly fearful; if these two clash again, it will still likely be missile attacks, and there’s a high probability that there won’t be direct ground combat. This type of conflict actually doesn’t have that much external impact. Once the panic subsides, things will return to normal. A few days ago, the crypto market plummeted, and many wondered if there’s no hope left for crypto; even if conflicts arise again, there’s no need to be so pessimistic.
The second thing is Powell's congressional hearing this time.
On the surface, it’s a routine report, but in reality, he’s walking a tightrope amidst a pile of gunpowder barrels.
Powell's core message is three points:
First, there is no urgency to cut rates now. Economic data is doing fine, employment is stable, growth hasn’t collapsed, and although inflation has come down from its highs, it’s still a bit away from the 2% target. Plus, Trump's tariffs may push prices up, so they haven’t cut rates recently.
Second, will there be a rate cut? When will it happen? It all depends on the inflation and employment data in the coming months. If inflation unexpectedly drops or the unemployment rate suddenly spikes, they might act sooner; if prices rise again, then they will continue to wait.
Third, don’t pressure me with the president. Trump has publicly pressured for aggressive rate cuts at least 17 times. Powell still says that the Fed doesn’t listen to the president, only to the economic data. Legally, Trump can’t fire him either, but it’s highly likely that there will be a change when his term ends in May next year.
Nothing new, the focus is on the economic data in the coming months. I believe inflation is unlikely to change much, and the impact of tariffs will also be hard to see in the next few months; we might only see part of the results from tariff negotiations in early July, and it may take several months to reflect in the inflation data. As for employment, it doesn’t seem to change much either. I haven’t paid much attention to the economic data in the past few months, and it seems that the data has little impact on crypto and US stocks. Tariff policies and negotiation results, stablecoin legislation, net inflow data for ETFs, and military conflicts seem to have a greater impact on the market.
However, in the coming months, macro-level factors may have a greater impact on the market. Economic data may not be that important; what matters is how these Federal Reserve officials interpret the data. For example, if they see a CPI of 2.4% as low and suitable for a rate cut, then they might cut. If they think it is still far from 2% and not suitable for a cut, then they won’t cut. How to address the data is the real power. In the second half of last year, a CPI around 3% led to a rate cut, and this year the CPI has been low, but they still don’t want to cut rates. So the data isn’t that important; what matters is how to interpret it.
From the market's bets on the rate cut prospects, there is a high possibility in September, but there are many variables. The probability of a rate cut in July is only 15%, while in September, it is around 70%.
There is a serious split within the Fed. Some (like Governor Waller and Bowman) believe inflation is controllable and call for a cut in July. Another faction is worried that tariffs could trigger secondary inflation and suggests waiting a bit longer. Powell, as the chair, needs to balance both sides, so his statements are vague.
In any case, pay more attention to these officials' statements, as the market's probability of a rate cut can change at any time based on their remarks.
A rate cut will come sooner or later, but the path will definitely be bumpy. Hold onto spot assets, avoid high leverage, and when the Fed truly pivots, liquidity will propel all risk assets to take off; Bitcoin won’t be absent.