The Fed's dovish stance overwhelms the hawkish side, with rate cut expectations soaring to 80% within days.
The current sharp volatility in the market perfectly illustrates how the high uncertainty of the Fed's policy path has become central to the pricing of all risk assets. In just a few weeks, the market's probability prediction for a December rate cut skyrocketed from 30% to 80%, only to sharply readjust due to data gaps and officials' remarks. This volatility itself is a typical characteristic driven by liquidity expectations.
The key point is that the core driving the change in expectations is not a single piece of data, but rather the narrative competition in a fragmented information environment. The employment data released in September was mixed, but Williams' statement about a "recent rate cut" was immediately interpreted by the market as a signal of a dovish victory. This overreaction to officials' brief remarks precisely illustrates that, in the absence of official data, the market can only rely on policy signals as anchor points.
On a deeper level, the internal divisions within the Fed have never truly been resolved. In the October meeting, there were already two dissenting votes on the resolution (Milan called for a 50 basis point cut, while Schmidt advocated for no change), and this division has been amplified during the data vacuum. The concentrated voices of dovish officials can indeed temporarily boost rate cut expectations, but the hawkish concerns about persistent inflation risks still exist, meaning any unexpected rebound in economic data could reverse expectations again.
For the cryptocurrency market, these swings in expectations are directly related to the opening and closing of the dollar liquidity gate. The entire process from the Bitcoin price drop 📉 to the divergence in institutional target prices is essentially a bet on "when and by how much the Fed will cut rates." When rate cut expectations heat up, risk assets immediately get a breather; when ADP data suggests strong employment, tightening liquidity expectations trigger sell-offs. This high sensitivity indicates that the cryptocurrency market has become a barometer for global liquidity expectations.
Currently, the market has fallen into a typical "data dependency" dilemma: it lacks sufficient data to verify economic conditions while overly interpreting fragmented information. This means that any unexpected data (whether strong or weak) could trigger market volatility far beyond normal levels. For us, the key is not to predict Fed actions, but to manage the liquidity risks brought about by the sudden changes in expectations.
