Breaking! The new Fed Chair just took office and is facing an "impossible task"—is the interest rate cut dream for $BTC and $ETH about to shatter?

Kevin Waugh recently testified before Congress, elaborating on his understanding of the Federal Reserve’s mission. He believes that a successful monetary policy is marked by the complete disappearance of the word “inflation” from public daily discussions. This standard stems from former Chair Greenspan’s idea that price stability means low enough price fluctuations that they no longer influence household and business decisions.

However, a huge gap exists between reality and vision. Just one hour before his testimony, the White House, whose nominee he is, once again publicly expressed a tough stance on interest rates, clearly stating that if the new chair does not lower borrowing costs promptly, they will be very disappointed. Waugh firmly defended the Fed’s independence during questioning, but political pressure is now an ever-present shadow.

The data paints an even more severe picture. Driven by the oil crisis, overall inflation has risen to nearly two-year highs, exceeding the Fed’s 2% target by more than one percentage point. Even before regional conflicts escalated, core inflation indicators had already exceeded the target. A survey from the University of Michigan shows consumer inflation expectations for the next year jumped to 4.8%, a seven-month high.

Meanwhile, a survey by the Institute for Supply Management indicates that corporate input costs have reached their highest level since inflation surged in 2022. These data collectively suggest that the U.S. economy is still far from the ideal state of “no one talking about inflation.”

If Waugh takes over, his reform blueprint includes reviewing inflation data, assessing AI’s impact on productivity, implementing forward-looking decisions, and creating space for future rate cuts by shrinking the balance sheet. But the issue is timing. In a context where businesses and the labor market are vocally complaining about prices, immediately starting a rate-cutting cycle is not only ill-timed but could even backfire.

The market has already responded. Pricing in interest rate futures shows that, after recent oil crises, the market believes the likelihood of the Fed cutting rates this year is below 50%, with expectations for the next cut pushed back at least 12 months. Investors betting that the new chair will comply with White House wishes are now disappointed.

Former Fed economist Claudia Sam sharply pointed out that Waugh’s remarks ignore the reality of political pressure. In her view, a Fed chair willing to defy White House wishes needs not only the courage to listen but also the confidence to face potential legal challenges.

What does this mean for the $BTC and $ETH markets, which closely monitor macro liquidity? The fading expectation of short-term rate cuts directly removes a key pillar supporting risk asset valuations. A more tightening, independent monetary policy stance will, at least initially, tighten market liquidity expectations.

Waugh’s “honeymoon” period may be very short. He needs to tame stubborn inflation in the short term but also find it difficult to meet political demands for rate cuts. This “impossible task” will directly influence global capital flows, including the nerves of the crypto market. Before inflation narratives completely disappear, markets will likely need to readjust in an environment of higher interest rate expectations.

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