#ETH Powell's core message from the speech on October 15 and its impact on the crypto world

1. Core information of the speech
1. Monetary policy direction: Policy formulation will be entirely based on economic data and risk assessment results, with strong signals of easing being communicated. The market's expectation probability for a 25 basis point rate cut this month is nearing 100%. This statement is interpreted as a continuation of the policy path following the first rate cut in September, aligning with the prior expectation of two more rate cuts by the Federal Reserve this year.
2. Economic and Employment Situation: Data prior to the government shutdown indicated that economic growth may slightly exceed expectations, but there are notable signs of weakening in the labor market, characterized by "slowing growth and low unemployment," and the risk of employment decline has clearly increased. Due to delays in the release of official data, the Federal Reserve is relying on non-governmental sources to assess the economic situation.
3. Balance sheet adjustment: Clarify that the quantitative tightening (balance sheet reduction) may end in the coming months, emphasizing that the Federal Reserve has "flexible" space in managing the size of its balance sheet. Current market reserves are still sufficient, but signs of tightening have been observed in the money market, with the long-term goal being to hold only government bonds on the balance sheet.
4. Impact of Inflation and Tariffs: Tariffs are driving up price pressures, and their slow transmission has shown persistent inflation risks. However, the rise in commodity prices is mainly due to tariff factors, rather than being caused by general inflation. Due to the government shutdown, there are no reliable alternative indicators to compensate for the lack of official inflation data.
5. Other key statements: Denied the claim that "reserve interest increases the burden on taxpayers" and firmly defended the necessity of the Excess Reserves Rate (IOR) tool; reflected on the belief that asset purchases should have been stopped earlier after the pandemic, but noted that the impact of stopping balance sheet expansion too early is limited; admitted that it is currently impossible to assess the actual impact of artificial intelligence on productivity.
2. Impact on the cryptocurrency market
1. Expectations of liquidity easing boost the market: Signals indicating that the tapering is about to end have directly ignited the market's anticipation of a liquidity inflection point. Historical experience shows that liquidity in the market usually improves after the end of tapering. This expectation has already driven funds to start flowing into risk assets, with the spot trading volume of Bitcoin increasing by 21% within one hour after the speech, and the trading activity of Ethereum contracts rising by 18%.
2. The expectation of interest rate cuts strengthens risk appetite: The nearly 100% expectation of interest rate cuts significantly reduces the opportunity cost of holding cryptocurrencies, attracting cautious funds to gradually enter the market. Market analysis believes that the capital overflow effect from traditional financial markets under loose policies will benefit the crypto world, and the potential price increase expectations for mainstream coins in the next 30 days have been adjusted to 15%-20%.
3. Policy uncertainty exacerbates short-term volatility: Although the overall inclination is towards easing, Powell emphasized that "monetary policy does not follow a preset path," and there are disagreements within the Federal Reserve regarding the pace of interest rate cuts. This uncertainty has led to a mixed market sentiment of caution and optimism, with the volatility of mainstream coins like Bitcoin and Ethereum rising to 12%. The trading activity in both the spot and futures markets has surged simultaneously. #ETH #BTC