Monetary Policy

Trump announced the Federal Reserve Chair candidate on Friday, with Bloomberg reporting Kevin Wash as the frontrunner. Polymarket odds surged from 30% to 95%, while BlackRock Red fell to 3.4%. Wash is seen as hawkish and will push for tightening. In July, he stated that Bitcoin can provide market discipline to "help policymakers understand right from wrong." The market expects a hawkish appointment, strengthening the US dollar and causing US bond yields to rise.

Bitcoin (BTC) collapsed violently in the short term, temporarily trading at around $84,140 on January 30. Trump declared a national emergency and imposed tariffs on countries that send oil to Cuba, causing risk assets to fall. Trump said that a new Fed chairman will be nominated next week, and interest rates should be 2 to 3 percentage points lower. El Salvador's central bank has put $5,000 in gold in reserves and continues to increase its holdings in Bitcoin.

The Federal Reserve maintains interest rates at 3.50-3.75%, and the US dollar rebound suppresses Bitcoin to a stagnant $89,500. Three major indicators reveal the reasons for the bottleneck: the 200-day EMA provides only minimal support, ETF costs at $86,600 offer no profit buffer, and there is a 19.5% supply deficit. Trump's pressure to cut rates and Bisset's strong dollar policy increase uncertainty.

Market prediction betting on BlackRock CIO Rick Rieder becoming Federal Reserve Chair shows a 45% probability on Polymarket. Trump at Davos called him "excellent," suggesting "there might only be one left." Hassett's reappointment to NEC drops to 8%. Trump hopes rate cuts will benefit cryptocurrencies, but pressure on Fed independence may increase volatility.

The Federal Reserve will hold a meeting on January 27-28, with CME showing a 95.6% probability of maintaining interest rates. November PCE inflation was 2.8%, well above the 2% target, making a pause in rate cuts a certainty. Bitcoin fluctuated between 80,000 and 90,000 USD, down 7.3% for the week, with no gains for the year, contrasting with gold reaching new highs. Trump threatened to impose 100% tariffs on Canada. AI stocks sold off, with META down 12.4% and NVIDIA down 9.5%.

The Japanese Yen experienced its largest single-day increase since June, soaring from 160 to 155.6. The Prime Minister warned of "abnormal fluctuations." The New York Fed and major banks are communicating, which is usually a sign of coordinated intervention. The 1985 Plaza Accord showed that joint US-Japan efforts could stabilize the Yen, weaken the US dollar, and boost assets. However, short-term risks include arbitrage unwinding, as the Bank of Japan's rate hike in August 2024 triggered Bitcoin to plummet from 64,000 to 49,000 USD, evaporating 15 billion.

White House Chief of Staff Hassett stated that Trump hopes he will remain, and the market interpreted this as a withdrawal from the Federal Reserve Chair race. The forecast market quickly adjusted, with Waller's probability soaring to 60%, Hassett dropping to 15-16%, and Waller around 13-14%. Waller led for the first time, but Trump's style is unpredictable. Powell's term ends on May 15.

Treasury Secretary Yellen told Trump that the Fed investigation into Powell has "made a mess" and could impact financial markets. Prosecutor Jeanine Pirro has initiated an investigation but has not informed the Treasury Department, White House, or Department of Justice. Yellen believed that Powell would leave when a new chair is appointed, but now his stance is more hardline, making it impossible to relinquish power. Smart money holds a net short position of $127 million in Bitcoin, and sentiment indicators show the market is building a bottom.

Trump announces a $200 billion mortgage-backed securities purchase plan, with Fannie Mae and Freddie Mac each buying $100 billion, without congressional approval. The goal is to reduce mortgage rates by 6.16%. Similar to the 2008 QE but led by the President rather than the central bank. The housing crisis has severely damaged approval ratings, and although the Federal Reserve cut interest rates by 75 basis points, mortgage rates remain high.

The Federal Reserve and the market have a serious divergence in the interest rate outlook for 2026. The market expects 2 to 3 rate cuts (Polymarket shows a 94% chance of a rate cut in June), but the Federal Reserve has only hinted at one rate cut. Trump's push for rate cuts was countered by inflation, causing economic policy approval ratings to drop to 36%. As the midterm elections approach, it has fallen into an impossible triangle of rate cuts, inflation, and elections.

Wall Street's predictions for 2026 are highly polarized, with Goldman Sachs forecasting the S&P 500 reaching 7,600 points, while the bearish camp warns of a 20% crash. Economist Jim Rickards is calling for gold prices of $10,000, AI pioneer Geoffrey Hinton warns of a wave of unemployment, quantum computing could potentially wipe out Bitcoin, and Elon Musk's SpaceX valuation is estimated at $80 billion with an IPO countdown.

Clear Street Managing Director Owen Lau pointed out that the Fed's rate cut力度 in 2026 will determine whether retail investors return to the crypto market. Currently, the cryptocurrency fear and greed index has been in the "extreme fear" zone since December 13, with a score of only 23 on Wednesday. Bitcoin has plummeted 29.3% from its October all-time high of $125,100, with the current price hovering around $88,439.

The Federal Reserve's December Federal Open Market Committee (FOMC) meeting minutes released on December 31st show that there was significant disagreement within the committee on whether to cut interest rates. Ultimately, the decision was made with a 9 to 3 vote to cut rates by 25 basis points, bringing the federal funds rate target range to 3.5% to 3.75%. This is the most dissenting vote count since 2019. The minutes reveal that although most officials believe that further rate cuts may be appropriate if inflation declines as expected, some officials expressed strong reservations about the pace of future easing, even stating that this rate cut decision was "very balanced" and could have supported holding rates steady. On the market side, according to CME's "FedWatch" tool, as of December 31st, traders believe there is an 85.1% probability that the Fed will keep rates unchanged in January 2026, indicating a cautious outlook for future policy shifts. This contradictory set of minutes casts a shadow of uncertainty over the global macro markets in 2026, especially for risk assets like Bitcoin and Ethereum, which are highly sensitive to such developments.