The benefits of interest rate cuts have been fully priced in, and the volatility axe is about to fall!

Source: Web3 Practitioner

Original Title: Rate Cut Implemented—Is the Market Celebration Justified?

In the early hours of September 18, 2025 (UTC+8), the Federal Reserve announced a 25 basis point rate cut as expected. The initial market reaction followed classic expectations: US Treasury yields fell, the US dollar weakened, and risk assets broadly rallied. However, an hour later, after Federal Reserve Chairman Jerome Powell held a press conference, the market trend completely reversed—a V-shaped rebound in the US dollar index, gold sharply retreated from historical highs, and US stocks diverged, leaving the market in significant confusion.

The core of this market turmoil was not the 25 basis point rate cut itself. According to CME FedWatch Tool data, the market had previously priced in a 96% probability of this rate cut, making it almost a foregone conclusion. The real trigger was the deliberately crafted yet obviously flawed appearance of “unity” behind the monetary policy decision. Among them, the lone dissenting vote cast by White House “special envoy” Stephen Miran acted as a crack, piercing the Federal Reserve’s claimed “independence” as the core institution of the traditional financial system, and unexpectedly provided new value endorsement for bitcoin as a decentralized asset.

I. Shift from “Data Dependence”: The Logic Behind the Necessity of Rate Cuts

Before analyzing the uniqueness of this meeting, it is necessary to clarify the core motivation for the Federal Reserve to initiate an easing policy at this time—the labor market has sent clear risk signals.

According to data from the US Department of Labor, in the three months ending August 2025, the average monthly increase in non-farm payrolls in the US was only about 29,000, the lowest level since 2010 (excluding pandemic shocks). Deeper employment indicators are also under pressure: initial jobless claims have risen to a nearly four-year high, and the number of long-term unemployed (unemployment duration over 26 weeks) has reached its highest since November 2021. In fact, Powell had already signaled at the end of August 2025 at the Jackson Hole Global Central Bank Annual Meeting, clearly stating that “downside risks in the labor market are rising,” marking a significant shift in the Fed’s policy focus from “fighting inflation” to “maintaining full employment.”

Although the market generally regards this rate cut as a clear “dovish turn” by the Fed, the presence of three core uncertainties makes the impact of this meeting far exceed that of a routine monetary policy adjustment, pushing the market into a complex situation.

II. Three Major Uncertainties: Policy Path Uncertainty and Political Intervention

(1) Uncertainty One: A Divided Dot Plot and an Ambiguous Rate Cut Path

The market’s core concern is focused on “how many more times the Fed will cut rates for the remainder of the year.” Since the 25 basis point cut was fully priced in, the “dot plot,” which reflects the future interest rate path, became the key guidance. On the surface, the median of the dot plot shows that Fed policymakers expect two more rate cuts in 2025, totaling 50 basis points, seemingly providing clear direction.

But a deeper analysis reveals serious internal divisions among decision-makers: of the 19 voting members, 9 support two more cuts this year, another 9 believe at most one more cut is warranted, and some even advocate for a rate hike; more extremely, one forecast (widely believed to be from Miran) suggests a 125 basis point cut this year. Goldman Sachs economists had previously warned that even if the dot plot points to two cuts, the market’s expectation of “minimal division among decision-makers” is overly optimistic. This significantly split forecast distribution greatly weakens the effectiveness of the dot plot as policy guidance.

The ambiguity of official policy signals stands in stark contrast to the market’s aggressive pricing. CME rate futures data shows that after the meeting, traders quickly raised the probability of further rate cuts in October and December 2025 to over 70%. This means the market faces two possible paths: first, the Fed sticks to a cautious stance, clashing with the market’s aggressive expectations and triggering a new round of volatility; second, the Fed compromises under political pressure and market expectations, starting an unexpectedly loose cycle. In either scenario, “uncertainty” will be the main theme of the market in the coming months.

(2) Uncertainty Two: Powell’s “Balancing Act” and the Dilemma of Policy Positioning

Facing internal divisions and external pressure, Powell defined this rate cut as a “risk management” operation. The core logic of this statement is to “balance both sides”: internally, by acknowledging labor market weakness, he provides rational support for the rate cut; externally, by emphasizing that inflation risks remain, he hints that subsequent easing will remain cautious, thus responding to the White House’s aggressive pressure.

However, this “all things to all people” balancing strategy has instead led the market into “split policy interpretation.” As Powell said at the end of the press conference, “There is currently no risk-free policy path”—cutting rates too much may fuel an inflation rebound, while cutting too little may provoke White House dissatisfaction. This core contradiction remains unresolved.

(3) Uncertainty Three: Unprecedented Political Intervention and the Fed’s Independence Crisis

The most critical potential risk of this meeting is the direct erosion of central bank independence by executive power—this “elephant in the room” (an obvious issue that is deliberately avoided) has finally surfaced.

Stephen Miran, Trump’s chief economic advisor, officially took office just one day before this FOMC meeting and immediately received voting rights. The market widely believes this was a targeted move by the White House to push for “substantial rate cuts.” Meanwhile, Trump’s attempt to dismiss Fed Governor Lisa Cook was temporarily halted by the courts, but related litigation is still ongoing. These events are not coincidental but clear signals of executive power directly interfering in central bank decisions, and Miran’s lone dissenting vote at this meeting is the ultimate manifestation of such intervention.

While Wall Street is still entangled in dot plot divisions and contradictory economic forecasts (cutting rates while raising future inflation expectations), the crypto market has interpreted a deeper macro narrative: on January 3, 2009, Satoshi Nakamoto left the inscription “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” in the bitcoin genesis block, fundamentally criticizing the vulnerability and rule flexibility of centralized financial systems in times of crisis.

Sixteen years later, Miran’s intervention has shifted this questioning of the system from the economic to the political level—when the monetary policy of the world’s most important central bank is no longer entirely based on economic data but is directly influenced by short-term political agendas, the long-term credit foundation of fiat currency is weakened. In contrast, bitcoin’s characteristics of “code is law,” “rules before power,” its fixed supply cap of 21 million, predictable issuance schedule, and decentralized nature not controlled by any single entity, form a unique “oasis of certainty” amid the current macro chaos.

III. Short-term Risks: Market Games After the “Shoe Drops”

Although the macro logic provides long-term value support for bitcoin, to judge “whether the market celebration should begin,” it is necessary to clearly distinguish between long-term narratives and short-term trading logic. The V-shaped reversal in the market after the rate cut highlights the reality of short-term risks.

First, this rate cut was a case of “over-anticipated event realized”—when the probability of an event is priced in at 96%, the event itself can hardly provide new positive momentum and instead becomes a window for speculative capital to “take profits,” in line with the classic market rule of “buy the rumor, sell the news.” Second, the ambiguity of Powell’s “risk management” statement and the severe division in the dot plot failed to send a clear signal of “starting a new round of easing,” disappointing previously aggressive speculative bulls.

Bitcoin’s price movement more intuitively reflects the market’s struggle: at 2:00 a.m. (UTC+8) on September 18, 2025, when the decision was announced, the initial market reaction was disappointment, with bitcoin quickly dropping to around $114,700, showing a typical “sell the news” pattern; but unlike the continued decline in gold and major US stocks, as Powell’s speech progressed, the market interpreted more dovish signals, and bitcoin immediately staged a V-shaped rebound, breaking through $117,000, demonstrating a differentiated trend from traditional risk assets.

This phenomenon shows that in the short term, bitcoin is still classified by the market as a “high-beta risk asset,” with its price volatility highly correlated with macro liquidity expectations. Therefore, in the near term, market volatility may further intensify, and any employment or inflation data that deviates from mainstream expectations could trigger sharp corrections in risk assets, including cryptocurrencies.

IV. Conclusion: Key Points Beyond the Dot Plot

In summary, whether “the implementation of the rate cut marks the beginning of a market celebration” must be answered separately from the perspectives of short-term trading and long-term value:

From a short-term trading perspective, the answer is negative. The current Fed policy path is full of uncertainty, and the benefits of the first rate cut have been fully priced in. Remaining cautious and alert to volatility is the more rational choice.

From the perspective of long-term value investing and macro narrative, this event is only the prelude. Every intervention of executive power in central bank independence, every contradiction and struggle in monetary policy decisions, is a real endorsement of the decentralized financial system and accumulates support for the long-term value proposition of crypto assets. Compared to the chaotic and divided dot plot, what is more worthy of attention is the “power struggle” unfolding within the Fed—its ultimate outcome will not only determine the future credibility of the US dollar but will also, to a large extent, define the core role of crypto assets in the next macro cycle.