Analysis of short order strategies in the Crypto Assets market

The expectation of interest rate cuts by the Federal Reserve has been shattered! Fucai pointed out that during the big dump, Wall Street was bloodied, and large short positions have already been established.

Why did the market collectively misjudge? Currently, there is widespread talk online that "interest rates must be lowered in September", with a probability of over 90%, but this expectation may be difficult to realize.

Looking back, the market's two bets on interest rate cuts in June 2023 and January 2024 were both slapped down by Powell, and this situation is likely to repeat itself.

It is worth noting that Wall Street giants have quietly retreated: Barclays, Goldman Sachs, and others are warning that "the probability of rate cuts is overestimated." However, retail investors are still frantically buying stocks and cryptocurrency, with weekly inflows reaching $21 billion. In such extreme divergence, it is often the retail investors who follow the trend that end up being hurt.

Three Key Data Reveals Rate Cut Fantasy

In reality, prices have not truly fallen. On the surface, the inflation rate of 2.7% in July seems low, but the core inflation rate, excluding energy and food, is 3.1% year-on-year. What is even more concerning is that service prices have surged by 0.55% month-on-month, which is exactly the "stubborn inflation" that the Federal Reserve is most worried about. Powell has clearly stated that inflation must return to 2% before considering interest rate cuts, but current data is instead on the rise, making a rate cut in September almost impossible.

Secondly, the impact of the tariffs imposed on some imported goods has not yet fully manifested in prices. Pacific Investment Company warns that commodity prices may suddenly surge in the coming months, as certain brands of shoes have already announced price increases of $5-10. If the rate cut in September coincides with tariffs causing price increases, it would be akin to adding "fuel to the fire" of inflation.

In addition, the labor market remains robust, with the unemployment rate staying low at 4.1%, and wage growth of 4.1% has not shown any significant decline. At the July Federal Reserve meeting, two board members publicly opposed interest rate cuts, believing that employment is too strong and that cutting rates could stimulate inflation to rebound.

Given the ongoing pressure of rising overall prices, the effects of tariffs yet to be seen, and the stability of the job market, the possibility of an interest rate cut in September is extremely low.

What important signals might Powell release tonight?

The global central bank annual meeting will be held on Friday at 22:00 Beijing time (. Powell is likely to pour cold water, emphasizing the need to wait for the August data ), but this data will not be released until September, essentially delaying the interest rate cut (. He may also warn about inflation risks, reminding the market not to be overly optimistic, especially as service prices continue to rise. At the same time, in response to recent criticism that "Powell is cutting rates too slowly" and even threats of replacement, he must prove that the Federal Reserve is not subject to political manipulation to maintain the credibility of the central bank. Personally, I anticipate he will likely make hawkish remarks to curb the market's overly high expectations.

How should ordinary investors respond at this stage?

Investors should be wary of interest rate-sensitive high-risk assets, such as real estate stocks, high-yield bonds, and certain [digital assets])(, which may face a big dump, while the dollar may strengthen. The lesson from 2007 is worth noting: the Federal Reserve (FED) lowered interest rates when inflation rebounded, ultimately triggering a financial crisis.

Investors need to closely monitor the PCE inflation indicator that the Federal Reserve values most on August 29, the August non-farm employment data on September 6, and the August CPI on September 12 to observe whether the impact of tariffs becomes evident during these three key time points.

Do not be easily convinced by the statement "data dependence = interest rate cut." Powell emphasized "looking at the data," which may actually be looking for reasons not to cut interest rates. When the market's expectations for an interest rate cut exceed 90%, any minor movement could trigger a panic.

Summary of Key Points

The probability of an interest rate cut in September has been severely overestimated, and it may actually drop significantly below 40%. Powell's speech tonight is a critical moment: if he makes hawkish remarks, the stock market and precious metals may experience a big dump in the short term. Retail investors should avoid blindly following the trend, as history shows that the odds of betting against large institutions are extremely low. Currently, holding cash and bonds is relatively safe, and one should consider taking action after the market sentiment calms down. It is worth recalling that during the 2022 Jackson Hole conference, Powell's hawkish remarks in just 10 minutes led to a 4% fall in the U.S. stock market within a week; tonight's situation could be even more dramatic.