Fed rate cuts are not truly bullish: Powell’s underlying message is the real key influencing the dollar and the crypto market

The Federal Reserve's first 25 basis point rate cut in 2025 triggered a short-term market frenzy. US stocks hit new highs, bitcoin broke through $118,000, and ethereum also touched $4,700. However, if this is only seen as a “bullish stimulus,” it may overlook deeper signals. Powell’s statements after the meeting are the real key to determining the future trend of the US dollar and the structure of the crypto market.

1. The Federal Reserve’s priorities are shifting

Powell made it clear that employment risks have surpassed inflation risks. Although core PCE remains above 3%, the US job market has clearly cooled:

Hiring growth is below trend;

Unemployment rate is approaching 4.5%;

Wage growth is slowing down.

This is a rare situation in the past 30 years, and the Federal Reserve has no choice but to prioritize “protecting employment.” If employment continues to deteriorate, further rate cuts are almost inevitable.

2. The inflation dilemma persists

The Federal Reserve’s inflation target remains at 2%, but the forecast for 2026 has been raised to 2.6%. This means that the Fed has chosen to ease even though inflation is still not under control, which in itself is a signal of risk. Historically, the Fed has rarely cut rates rashly when inflation is high, and today’s decision highlights the immense internal pressure.

3. Serious internal divisions within the Fed

The dot plot shows that half of the officials support two more rate cuts this year, while the other half prefer to hold steady. Some officials appointed by Trump even directly advocate a one-time 50 basis point cut. Such fierce disagreement is extremely rare with only two meetings left.

4. Short-term market euphoria, but risks are accumulating

After the rate cut news was announced:

The S&P 500 and Russell 2000 both hit new highs;

The US Dollar Index hit its lowest level since 2022;

The yield curve for US Treasuries steepened, indicating the market is betting on more easing.

Historical data shows that when the Fed starts cutting rates at stock market highs, the S&P 500 rises by an average of about 14% over the next year. But short-term volatility is inevitable, and excessive optimism may bring unexpected corrections.

5. The real estate market remains frozen

Even as rates fall, mortgage demand remains at its lowest point since 2009. More than half of US homeowners still hold loans below 4% and are reluctant to sell their homes. In other words, rate cuts cannot immediately thaw the real estate market, and structural problems persist.

6. The crypto market’s rapid response

Bitcoin and ethereum reacted immediately, with prices rebounding strongly. The reasons are:

The US dollar weakened, benefiting risk assets;

ETFs continue to attract capital inflows;

Stock markets hit new highs, and risk appetite has fully recovered.

During past easing cycles, bitcoin often outperformed all traditional assets, and this round may repeat that logic.

Conclusion

On the surface, the Fed’s rate cut has ignited market enthusiasm, and the weakening US dollar and return of liquidity have created short-term positives for the crypto market. However, Powell’s statement means that the core of US policy has shifted from “fighting inflation” to “protecting employment,” which is both the reason for easing and the root of potential risks.

In the short term, risk assets may continue to benefit from liquidity, but in the long run, if inflation is difficult to bring down, the Fed may be forced to face the dilemma of “stagflation.” For the crypto market, this is both a window of opportunity and a high-risk gamble.