Federal Reserve Rate Cut: Why Is the Market Reacting Calmly?

Original Odaily (@OdailyChina)

Author: Golem (@web3_golem)

Original Title: The Federal Reserve Cuts Interest Rates by 25 Basis Points as Expected, Why Is the Market Reaction Tepid?

"Good afternoon," at 2:30 on September 18, this was the opening greeting from Federal Reserve Chairman Powell after announcing a 25 basis point rate cut. Although this greeting, contrary to market experience, brought dovish remarks, the market did not show a significant upward trend. (Odaily note: According to previous press conference summaries, if Powell opens with "Good afternoon," it signals a hawkish view and the market may fall; if he says "Hello everyone," it is a dovish view and the market may rise.)

After the Federal Reserve's decision was announced, spot gold hit a record high of $3,704/ounce; however, the US stock market was mixed, with the Dow Jones up 0.57%, the Nasdaq down 0.33%, and the S&P 500 down 0.10%. The crypto market saw a slight overall increase, but not by much: BTC 24H up 1.07%, ETH 24H up 2.66%, SOL 24H up 5.5%, DOGE 24H up 6.2%.

This rate cut is the Federal Reserve's first since December 2024. Although it met market expectations, the global market response was lukewarm. On one hand, Powell's speech at Jackson Hole in August this year had already opened the door for a rate cut, and the market had already "bought in" at that time, so after the rate cut was implemented, the market naturally showed a "buy the rumor, sell the fact" reaction. On the other hand, a 25 basis point rate cut is no longer enough to satisfy the market's "appetite"; the market is more concerned about the Federal Reserve's policy for the rest of 2025. "Is this the first in a series of consecutive rate cuts?" and "How many times will rates be cut this year?" have become the market's main focus.

There Is Still No Clear Signal on How Many Rate Cuts Will Happen This Year

In the Q&A session after the rate announcement, Powell said, "Today's (easing) action can be seen as a risk management type of rate cut." This is the Federal Reserve's decision to prioritize managing and solving employment issues in the dilemma of "weak labor market + inflation not fully under control." This decision is based on the Fed's belief that "tariffs have only a one-time impact on inflation and will only cause a short-term rise in price levels."

But for the Federal Reserve, this year is still a special moment, because under normal circumstances, "weak labor market + rising inflation" is rare. Such an unusual economic situation has naturally led to an unusually large divergence in the Fed's interest rate forecasts.

The Federal Reserve's Dot Plot is a special chart used to show future interest rate expectations, directly reflecting the internal divergence and consensus within the Fed regarding future rate trends. The Dot Plot released on September 18 shows that among 19 officials, 1 believes there will be no rate cuts in 2025; 6 believe there should be a total of 25 basis points of rate cuts in 2025, i.e., one cut; 2 believe there should be a total of 50 basis points of cuts, i.e., two cuts; 9 believe there should be a total of 75 basis points of cuts, i.e., three cuts. One official (most likely Milan) believes there should be a substantial 150 basis points of cuts in 2025, i.e., at least two more large cuts (75 BP + 50 BP) within the year.

The Dot Plot shows that compared to June (when 7 officials believed there would be no rate cuts in 2025), rate cuts have basically become a consensus within the Fed, with the only difference being the extent of the cuts. Although the Fed's median forecast indicates another 50 basis points of cuts in 2025, which would usually mean a generally looser market environment and a wave of gains for US stocks and the crypto market, Powell still stated in the Q&A session that there is not much support within the FOMC for a 50 basis point cut.

This FOMC meeting believes that the inflation rise caused by tariff policy is only temporary, but Powell also indicated another possibility: if the inflation impact is more persistent, then the Fed's responsibility will also be to ensure that the current one-time price increase does not turn into a sustained inflation problem. This leaves the market with suspense.

Attitudes of Market Participants

Market participants also have different interpretations of Powell's remarks.

George Goncalves, Head of US Macro Strategy at Mitsubishi UFJ, believes that although the Fed has restarted the rate-cutting process, it has not entered a rate-cut sprint mode. "This Fed decision is the most dovish statement they could make, and they have added another rate cut to the Dot Plot expectations this year. However, it feels like the Fed has not entered a rate-cut sprint mode; they have just restarted the process because they acknowledge that the job market is not as good as they expected."

Michael Rosen, Chief Investment Officer at Angeles Investments, said: "For the more aggressive monetary policy easing path that the market initially expected, Powell played a cooling role. He acknowledged the weakness in the labor market but emphasized that only if a more severe situation emerges, which is not currently apparent, will larger rate cuts be considered."

Some investors firmly believe that the Fed will make substantial rate cuts in the remainder of 2025. Nomura Securities expects the US Fed to cut rates by 25 basis points each in October and December, previously predicting a cut in December, and expects the Fed to cut rates by 25 basis points each in March, June, and September 2026.

CITIC Securities still expects the Fed to cut rates by 25 basis points each at the October and December meetings, but only after the final selection of the new Fed chairman will the 2026 rate path become clearer.

Crypto Market Participants Are Generally Optimistic

Crypto market participants are generally optimistic. Tom Lee, Chairman of BitMine, said in an interview with CNBC two days ago that after the Fed cuts rates, bitcoin and ethereum may see substantial gains in the next three months.

On-chain whales have also started to vote with their feet, showing a preference for ETH. According to Lookonchain monitoring, after the Fed cut rates by 25 basis points, an OTC whale (0xd8d0…c39d) spent 112.34 million USDC to buy 25,000 ETH at a price of $4,493.

At the same time, a whale/institution (0x2aA…dDa2) who made $74.92 million in profits from ETH swing trading, bought 18,000 ETH at an average price of $4,487 using 80.77 million USDC through Wintermute in the early hours today. This address currently holds 530 million USDC and 25,000 ETH, worth about $114 million.