When gold breaks through $3400 per ounce with a rocket, the probability of a 25 basis point rate cut by the CME in September secretly dropped to 85%. This wave of macroeconomic fantasy directly left the friends in the crypto circle dumbfounded! What's even more exciting is that Trump waved his hand to fire the Federal Reserve governor, forcibly rubbing the independence of the central bank into the ground. Don’t think this is just a domestic issue in the United States; it might directly impact your holdings next week! Today, Old K will analyze this big game and tell you how ordinary people should avoid pitfalls and seize opportunities!
Let me give the new brothers some context: On August 25, Trump fired Federal Reserve governor Lisa Cook on the grounds of 'mortgage fraud'. This is not a trivial matter; it's the first time in the hundred-year history of the U.S. central bank that a president has fired a governor, directly triggering a constitutional crisis! Those in the know understand that the Federal Reserve Act of 1913 only allows the president to dismiss a governor 'for cause', but this 'cause' has not been explicitly stated. Cook stood firm, directly stating 'You have no legal authority; I will continue to work and sue you', while the Department of Justice hasn’t even initiated a formal investigation.
Old K stated directly that Trump’s intention is not just about the liquor! Currently, there are 7 board seats at the Federal Reserve, and he has already placed 2 people. If he gets Cook out and replaces him with his own person, the Federal Reserve will be under his control. Moreover, he specifically mentioned in his dismissal letter to 'pay attention to housing costs', which is obvious to anyone that it's pressuring the Federal Reserve to cut rates! Four former Federal Reserve chairmen are anxious; Volcker and Greenspan, these big shots, have rarely issued joint warnings, saying that political interference in the central bank will ruin inflation and growth—this warning usually goes unnoticed, but now the crypto market is already panicking. On August 26, U.S. bank stocks fell 1.8%, and the volatility of financial stocks jumped directly by 12%, essentially reflecting that investors fear the central bank's credibility is collapsing.
The key point is coming! In this power struggle, the most crucial variables are next week—the August non-farm employment report and core PCE inflation data, which can be called the 'death judge' of a rate cut in September, and even more so the 'pole star' of our crypto circle! Old K will break down the key points for you; remember to take notes and don't be lazy:
Let’s first talk about non-farm payroll data. The market generally predicts an increase of 165,000 jobs, but Old K reminds you that if it is below 130,000, expectations for a rate cut will explode, and the market may crazily speculate on a 50 basis point cut; but if the average hourly wage growth exceeds 4%, those hawks opposing rate cuts will gain confidence, and the probability of a rate cut will plummet. Refer to the non-farm data from August 2024, which directly raised the probability of a 50 basis point rate cut to 59%, and the crypto market fluctuated widely that day. This time, we absolutely cannot be complacent.
The more critical point is the core PCE data, which is the 'favorite' for the Federal Reserve to observe inflation. The market guesses that the year-on-year rate for August will drop to 2.9%, but the Atlanta Fed model suggests it may remain at 3.1%. There are significant implications here: if the data falls below 2.8%, the probability of a rate cut in September could surge back to over 90%, market liquidity would ease, and the crypto market would likely benefit; however, if it exceeds 3.2%, the dollar will rebound, and the crypto market will likely need to adjust. Old K tells you that the stickiness of core service inflation is the final hurdle; if this data does not decrease, discussing rate cuts is just empty talk.
Some brothers may ask, what does this have to do with the crypto circle? Old K gives you a hint: The crypto market now depends on 'the Federal Reserve's mood'. The world is easing, the European Central Bank has cut rates four times by 100 basis points, and New Zealand and Indonesia are also easing. If the Federal Reserve does not follow suit, a strong dollar will crush risk assets, and the crypto market will surely be affected; but if they are forced to cut rates under Trump's pressure, it may trigger stagflation. At that time, safe-haven assets like gold will go crazy, and the crypto market may experience fluctuations due to inflation worries.
There are three risk points that must be vigilant, and Old K highlights them for you: First, the uncertainty of judicial confrontation. If the court rules that Trump is unconstitutional, the conflict between the executive branch and the central bank will intensify, and chaotic policy communication will lead the market to make wild guesses; if Cook loses, future presidents will be able to arbitrarily fire Federal Reserve board members, and the independence of the central bank will be lost, potentially causing a significant drop in the dollar, leading to fluctuations in the crypto market. Second, conflicting policy logic. Trump raises tariffs, pushing inflation up, while also pressuring the Federal Reserve to cut rates. This leads towards stagflation, and historically, risk assets have not fared well during stagflation periods. Third, market expectations are disconnected from the Federal Reserve's actual thoughts. The market currently believes there is an 85% probability of a rate cut, but in the minutes of the Federal Reserve's July meeting, most officials still felt that inflation risks were greater. If next week's data is good, expectations for a rate cut could halt abruptly, and the crypto market may experience a pullback.
