Trump's interest rate cut complex: Make America cut rates again? Make America great again?

Source: Talking Li and Talking Outside

In the article a few days ago, we mainly rethought the development of the market. In terms of current market sentiment, many people seem to be increasingly hopeful about the expectation of interest rate cuts (by the Federal Reserve).

The last time the crypto market benefited significantly from interest rate cuts was at the beginning of 2020. Before the outbreak of the COVID-19 pandemic, the federal funds rate (the rate adjusted by the Federal Reserve) was actually not high, only 1.5% - 1.75%. However, in response to the impact of the pandemic, the Federal Reserve made two emergency rate cuts within a month: the first cut was 50 basis points (i.e., 0.5%), and the second cut was 100 basis points (1%).

As a result, the federal funds rate was directly lowered to 0% - 0.25%, which meant that borrowing (credit) became easier than ever. With the decrease in borrowing costs, a large amount of liquidity flooded into the market (including the crypto market) and pushed up the prices of various risk assets, becoming one of the main driving factors of the bull market in 2021.

1. Trump's Interest Rate Cut Complex

An interesting report from the BBC (March 16, 2020) noted that as the Federal Reserve cut rates to zero, "using all the ammunition at once," Trump, who had previously criticized Powell for being "ineffective," unusually praised him, saying "it's great," "very good news," and "makes me very happy." As shown in the figure below.

From the report at that time, it seems that Trump has always had a certain "complex" regarding "interest rate cuts."

Five years have passed in the blink of an eye. I remember that after Trump took office again this year (2025), he publicly stated that he understands interest rates better than Federal Reserve Chairman Powell. As shown in the figure below.

However, from the series of actions Trump has taken in the past two months, and the resulting significant market fluctuations (including the U.S. stock market, crypto market, etc.), it seems that the Federal Reserve has not "listened" to his arrangements this time. This has led many in the market to speculate that the reason Trump is creating so much turmoil now is to "force" the Federal Reserve to cut rates.

2. The Impact of Interest Rate Cuts on the Market

Let's return to the topic of the crypto market.

It was precisely because of the interest rate cuts in 2020 that extremely low borrowing costs and larger liquidity gave rise to a new bull market.

However, if we look back at historical price trends, we can find that the effects of the interest rate cuts did not immediately manifest in the crypto market. The bull market did not erupt until 2021. This aligns with the viewpoint we mentioned in previous articles: the crypto market mainly benefits from "excess liquidity," meaning that the large-scale liquidity brought by interest rate cuts first flows into traditional markets like the U.S. stock market, and only then does the excess liquidity flow into the crypto market, which is a secondary high-risk market.

However, this situation is gradually changing, as more and more large institutions have begun to deeply participate in the crypto market in recent years. The crypto market is becoming increasingly synchronized with the U.S. stock market. Once the market has large-scale liquidity, some funds may choose to flow into the crypto market in advance.

As time moved into 2022, the interest rate cuts (zero interest rates) also led to rising inflation in the U.S., with the CPI reaching a 40-year historical high. Therefore, the Federal Reserve began a new round of interest rate hikes, raising rates six times in 2022 (in March, May, June, July, September, and December), and by July 2023, rates had been raised 11 times, reaching 4.33% - 5.50%, the highest level in 20 years. As shown in the figure below.

From a temporal perspective, the period from 2022 to 2023 coincided with a new bear market in the crypto market.

As we move into 2024, the Federal Reserve has begun to cut rates again (starting a new round of rate cuts in September 2024) and inject new liquidity into the market. Coupled with the macro narrative of ETFs and the hype around some new internal narratives in the BTC ecosystem, the crypto market has reopened a new bull market.

Moreover, we can see from the continuous growth of stablecoins that some funds began to enter the market on a large scale around that time, as shown in the figure below. We have also experienced subsequent events, such as the large-scale boom of MemeCoins (price speculation) and BTC breaking the $100,000 milestone and continuously creating historical highs…

So, what will the next script look like? I don't know. We need to pay attention to the Federal Reserve's interest rate meeting next week (March 19), as shown in the figure below.

However, from some current predictive data, the expectation for rate cuts in June is still relatively high, as shown in the figure below.

Although the expectation for rate cuts this year remains, we can see from the above that there are differences between the interest rate cuts in 2020 and those in 2025: aside from the difference in starting rates, the biggest difference is the speed of the cuts. The previous round of cuts was relatively rapid and substantial, while the current round of cuts appears to be a slow and gradual process, unless a larger-scale black swan event occurs, such as the stock market circuit breaker we mentioned in a previous article (March 11).

As we mentioned above, the crypto market mainly benefits from excess liquidity. Even if this situation may change in the future, if the process of interest rate cuts is slow and gradual, then the current crypto market may also experience a gradual trend, making trading more difficult and requiring caution for ordinary investors, unless extreme conditions arise, such as:

On the positive side, meeting the other two core factors (narrative, macro, policy) we mentioned in previous articles, namely, new reforms or innovations within the crypto market (which currently seem absent), or significant new policy stimuli, primarily from the U.S. (of course, if a certain major Eastern country can loosen its policies, it would be an even greater boon, but that currently seems impossible). On the negative side, a black swan event larger than a trade war could directly crash the market.

Trump said: Make America Great Again!

Retail investors said: Viagra is fine, as long as it leads to interest rate cuts!