Is the Federal Reserve still powerful?
The interest rate cuts have finally arrived, and even a small amount of quantitative easing has been initiated, but U.S. stocks and bonds did not surge wildly, nor was there a celebration.
In the next two years, only one cut is expected each year. So is this interest rate cut a farewell for Powell or a welcome gift for Hassett?
Just think about it, otherwise, why would we need Hassett to take the stage?
Isn't it just to lead the next round of real continuous interest rate cuts and real crisis rescue? Is it that from now on, the Fed's interest rate cut story is coming to an end? What is its real big move? Who will these cards be played on? And how should we respond?
Know yourself and know your enemy, and you will never be defeated.
Let's start with this rate cut, all the way to the great power game in 2026 and the Genesis project, to see how the U.S. lays out its strategy and what proactive measures it still holds. You will likely find that the Federal Reserve is not giving the market red envelopes, but rather paving the way for the next crisis, the next round of financial wars.
Let's clarify the recently realized December rate cut.
On December 10, the Federal Reserve did three things:
First, this time the rate was cut by 25 basis points, bringing the federal funds rate range to 3.5% to 3.75%;
Second, announce the resumption of short-term Treasury bond purchases, opening a small tap to give the market a drip; in 2026 and 2027, each will schedule a 25 basis point rate cut, looking like a standard set of moderate easing measures.
When we rewind time to November 13, the internal divisions within the Federal Reserve were exposed: should we pause interest rate cuts, or should we wait and see for a while?
At that moment, the market began trading with expectations of 'let's pause this year and talk again next year.'
Subsequently, things began to reverse. The name of the new chairman, Hassett, appeared, and the market immediately began trading with the expectation that 'the future will be more dovish and more willing to cut rates.' Sentiments warmed up until today, when the rate cut was realized, and an additional liquidity boost for short-term bonds was added.
But the truly paradoxical thing is that all these positives have been realized, yet the market just won't stay above the horizontal line of November 12.
In other words, this is no longer a plus for the market. From now on, the question becomes: will there be consecutive cuts again? Will we enter another pause period?
Understanding whether there will be a pause is actually not difficult; just look at the Federal Reserve's historical 'three board axes.' The past three major cycles are almost identical.
First, raise interest rates to a usable height; before the burst of the internet bubble in 2000 and before the subprime mortgage crisis in 2007, interest rates were at 5.25%. To allow for uncertainty, rates were raised to 2.25 to 2.5, and then preventive small rate cuts began, with pre-crisis rates at 1.5% to 1.75%. The second step is to start cutting rates, first preventively, then all the way down.
Let's look at them one by one.
During the first internet bubble, the Federal Reserve was still raising rates, pushing them up to 6.5%. While raising rates, it burst the bubble, and then it dropped to 1%. This rate cut occurred after the end of the rate hikes; in June 2006, rate hikes ended, and then in August 2007, explosions began, coupled with QE to support the market; during the third COVID-19 pandemic, rates had already been cut three times from 2.25 to 1.5, and when the pandemic really hit, there was an emergency stop within 12 days, dropping rates to the bottom; the third step was to bring rates to zero, combined with quantitative easing to fully support the market.
To summarize, during the first round, rates were still being raised; during the second round, rates were raised, and a year and two months later, the third round began with slow rate cuts, ultimately leading to an explosion. This management and crisis handling approach can now be said to be superbly executed.
This round started from a high point of about 5.5%, and by 2024, it had been cut three times in a row; now it only remains at 3.5% to 3.75%. If a crisis of the same magnitude as 2000 or 2008 occurs in the future, the actual rate cut space that can be continuously reduced is probably only around 300 basis points. In other words, the staircase of interest rates has become lower than before any major crisis in history.
This bubble is not filled with internet companies everywhere, but highly concentrated in AI and a few adjacent companies. The advantage is that these companies are genuinely profitable, unlike in 2000 when there were many that were just telling stories. Once the bubble starts to concentrate, it will violently crash down all at once.
So now looking back, our initial judgment: the Federal Reserve is very likely to enter a period of pause, not because the economy is good, nor because there isn't enough ammunition, but rather to leave a bit of regret medicine for tomorrow's crisis, instead of giving the market a one-time red envelope today.
Moreover, very few people look at the three rounds together. Each round of major rate hike cycles, every time the Federal Reserve acts, will lead to a significant return of capital from the clearly weakened economies back to the U.S.
After the 1997 Southeast Asian financial crisis, capital flowed back to the U.S. in large amounts, leading to the bubble from 1998 to 2000. The bubble was America's own, caused by an external crisis; before the subprime mortgage crisis in 2007, the rate hike led to the European debt crisis in 2009-2010, with funds flowing back into the U.S. again; during the COVID-19 pandemic in 2020, we all remember this round. We also have a white paper explaining the timing issue of the pandemic's origin. This time hasn't completely ignited systemic crises elsewhere, but due to the late initiation of rate hikes and high inflation, funds continue to flow back into the U.S.
Do you think it was intentional, or is it a natural selection of the market, or a designed capital cycle? The Federal Reserve, the Treasury, and the 'king' argue fiercely, but is it real contradiction or a double act? I won't provide an answer; I leave it for you to judge.
We roughly calculate that to cut rates back to near zero, several rate cuts are needed; thus, the safe height of interest rates must be at least above 3% to have ammunition.
Now that interest rates have reached 3.5%, there’s little room left for another one or two cuts. Who should complete this big move staircase going up and down?
The answer is obvious: it's left to Hassett. Either after he takes office, he raises rates again to a higher level to prepare for the next crisis, leading the way for continuous rate cuts. At this point, we may already be close to the end of the normal rate cut narrative, and you will hear more about pausing rate cuts or watching data.
Now let’s broaden our perspective. Why did the U.S. postpone the tariff war by a year? Because once tensions escalate in the Taiwan Strait, the U.S. has an excuse to launch a new round of sanctions against us. As long as there is a relatively high interest rate at that time, it can repeat the old routine of creating crises and siphoning global funds.
In addition to the interest rate card, there are two very crucial cards: the first Genesis project, which triggers an AI arms race; the stablecoin policy, which triggers a global siphoning of bank funds. These two cards are the real focus I want to address today. Beyond interest rate cuts, what truly deserves our high attention is the U.S. national AI system and the global capital siphoning pipeline of stablecoins.
The issuance and custody of stablecoins are in the hands of large banks in the U.S. If the U.S. vigorously promotes stablecoins, first, the domestic small and medium-sized banks will be drained; customers will transfer money from small banks to large banks' custody accounts to buy stablecoins, which will lead to a confirmed outflow of deposits. The backing for stablecoins will either be U.S. dollar cash or short-term U.S. Treasury bonds. Based on short-term Treasury bonds, it essentially siphons reserves from the banking system, sending money to the Treasury's TGA account.
An interesting structure: the more stablecoins are issued, the more U.S. Treasury bonds will be purchased, the more bank reserves will be siphoned off, the more money the Treasury will have, and the more small and medium-sized banks will be forced to contract, resulting in an overall decline in bank system liquidity, while money piles up in the Treasury's TGA account, waiting for the Treasury to decide which industry to pour it into.
So which industry will the U.S. Treasury choose? There is no other, only technology, only AI. Because when the U.S. Treasury invests one dollar in servers and power transformation, it can lift the entire high-tech industrial chain, creating a multiplier effect on the stock market and balance sheets.
Why do you see various policy tendencies and public narratives trying to elevate AI as the engine of the U.S. economy? We have also seen the U.S. version of the AI Apollo program (Genesis project) brought to the forefront.
We have a socialist national system, which you can understand as a capitalist national system. What does it want to do? Use the supercomputers and massive scientific research data from national laboratories, combined with the resources of the entire federal government, to build a super infrastructure project driven by AI for scientific research, rewriting fields like energy, biotechnology, national defense, and materials with AI.
What does this imply? AI infrastructure investment will increasingly resemble heavy asset projects like power grids, highways, and hydroelectric stations. AI servers, chip production lines, electricity, energy storage, and cooling are all part of one chain. This transforms AI from a technological concept into a direction for fiscal spending.
At this point, we can connect the previous points: stablecoins based on short-term Treasury bonds will drain the funds from the banking system, pulling money into the Treasury's TGA account. If the Treasury wants to stimulate the economy, it must inject funds where the multiplier is highest. So, where is the highest multiplier?
It's AI. Stablecoins drain bank liquidity; under this combination, the Genesis project has become the top priority direction for U.S. fiscal policy, continuously pouring money into AI infrastructure.
What will American society look like? The tech industry's bubble will grow larger, while liquidity in other livelihood welfare areas will become poorer. Capital and technology are tightly bound together, and the squeeze on ordinary people will become increasingly apparent. The cyberpunk future of America is moving from science fiction novels to reality trailers.
But before that, the investment of the U.S. technology national system, combined with the capital siphoning of stablecoins, will definitely have a global impact. Do we have a response?
At the end of November, the central bank led 13 departments to jointly issue a document, clarifying the regulatory stance on virtual currencies similar to stablecoins, reiterating the prohibitive policy on virtual currencies, largely to preemptively apply brakes on next year's U.S. dollar stablecoin. U.S. stablecoins will only siphon off funds from its own small and medium-sized banks and allies, so let it play in the Western Hemisphere for now, trying to avoid involving its own banking system, maintaining its position on this stablecoin link. What remains is our technology South Gate project, a direct confrontation between the U.S. Genesis project and the national systems of both countries.
So 2026 will be very exciting; interest rates will quiet down temporarily, and the real drama will be above interest rates, in rare earths and the renminbi. $BTC
