Let’s talk about Trump’s interest rate cut complex: Start the money printing machine and make the United States great again?

Source of the article: Li Huawai

In the article a few days ago, we mainly rethinked the development of the market. As for the current market sentiment, many people seem to have increasingly high hopes for the interest rate cut (Federal) expectations.

The last time the crypto market enjoyed the benefits of a large-scale interest rate cut was that it started in 2020. Before the outbreak of the new crown epidemic, the federal funds rate (the Federal Reserve adjusted interest rate) was actually not high, only 1.5% to 1.75%. But in order to cope with the impact of the COVID-19 pandemic, the Federal Reserve conducted two emergency interest rate cuts within a month: the first rate cut was 50 basis points (i.e. 0.5%) and the second rate cut was 100 basis points (1%).

As a result, the federal funds rate was directly reduced to 0% - 0.25%, which meant that lending (credit) became easier than ever. As the cost of borrowing decreased, a large amount of liquidity poured into the market (including crypto markets) and pushed up the prices of various risky assets, which also became one of the main driving factors in the 2021 bull market.

1. Trump 's interest rate cut

A BBC report at that time (March 16, 2020) was also quite interesting: As the Federal Reserve urgently cut interest rates to zero, "fired all ammunition at one time", Trump, who had been criticizing Powell for being "not good", also rarely changed his words and praised him for saying "great", "very good news", and "had made me happy". As shown in the figure below.

It can also be seen from the reports at that time that Trump has always had a "complex" in the matter of "rate cuts".

Five years have passed in a flash. I remember that after Trump took office this year (2025), he also publicly stated that he understood interest rates better than Federal Reserve Chairman Powell. As shown in the figure below.

However, judging from the series of things Trump has done in the past two months and the huge fluctuations in the market (including US stocks, crypto markets, etc.), it seems that the Fed has not "listened to his" arrangement this time, and this is also what many people in the market are speculating at the moment. The reason why Trump has done so many things now is to "force" the Fed to cut interest rates.

2. The impact of interest rate cuts on the market

We continue to return to the topic of crypto market.

It is precisely because of the interest rate cut in 2020 that extremely low borrowing costs and larger liquidity have also nurtured the process of a new bull market.

But if we look back at the historical price trend, we can also find that the effect of interest rate cuts at that time was not immediately reflected in the crypto market. The bull market did not break out until 2021. This is actually the point we mentioned in our previous article: the crypto market mainly enjoys "excess liquidity", that is, the large-scale liquidity brought about by interest rate cuts will first flow into traditional markets such as the US stock market, and then the excess liquidity will flow into a secondary high-risk market like the crypto market.

However, this situation will gradually change, because as more and more large institutions have begun to participate in the crypto market in recent years, the crypto market has become increasingly synchronized with the US stock market. Once the market has large-scale liquidity, some funds may choose to flow into the crypto market in advance.

As time enters 2022, because interest rate cuts (zero interest rates) have also led to higher inflation in the United States, CPI has reached an all-time high in 40 years. Therefore, the Federal Reserve has restarted a new round of interest rate hikes, raising interest rates six times in 2022 alone (in March, May, June, July, September and December). By July 2023, a total of 11 interest rates were raised, reaching 4.33% - 5.50%, the highest level in 20 years. As shown in the figure below.

If we look at it from a time dimension, the period 2022–2023 also happened to be a new round of bear market in the crypto market.

As time continues to enter 2024, the Federal Reserve has restarted interest rate cuts (a new round of interest rate cut cycle started in September 2024) and injected new liquidity into the market. Coupled with the promotion of macro narratives such as ETFs and the hype of some new internal narratives such as BTC ecology, the crypto market has restarted a new round of bull market.

Moreover, we can also see from the continued growth of stablecoins that some funds only began to enter the market on a large scale at that time. We have also experienced the subsequent events, such as: MemeCoin's massive boom (price hype), BTC's breakthrough of $100,000 milestone and continued to set a record high...

So, what will happen to the next script? I don’t know this, we need to pay attention to the Fed’s interest rate meeting next week (March 19), as shown in the figure below.

However, judging from some current forecast data, the expectation of interest rate cuts in at least June is relatively high, as shown in the figure below.

Although the expectation of interest rate cuts this year is still there, in fact, through the above article, we can also find the difference between interest rate cuts in 2020 and interest rate cuts in 2025: In addition to the differences in the starting interest rate, the biggest difference is the rate cut rate. The speed and amplitude of the previous round of interest rate cuts are relatively large, and this round of interest rate cuts currently seem to be a slow and gradual process unless larger-scale black swan events occur, such as the US stock circuit breaker we mentioned in the article a few days ago (March 11).

We mentioned above that the crypto market mainly enjoys excess liquidity. Even if this situation may change in the future, if the process of interest rate cuts is slow and gradual, then it may also be a gradual market for the current crypto market. For ordinary investors, trading will become more difficult and need to be cautious unless extreme conditions also occur, such as:

In terms of positive factors, the other two of the three core factors (narrative, macro, and policy) mentioned in our previous articles are: new changes or innovations appearing within the crypto market (not yet visible), or new major positive stimulus appears in the policy. The policy here mainly refers to the United States (of course, if a major Eastern country can relax, it will be a greater positive, but it is impossible at present). In terms of negative factors, a black swan event that is bigger than a tariff war can directly lead to the market collapse.

Trump said: Make America great again!

Leek said: Viagra is OK, as long as it can cut interest rates!