With the interest rate meeting imminent, U.S. President Donald Trump stated that the Fed would implement its first easing policy in nine months at this meeting, expecting the Fed to "cut rates sharply."

On September 10, the latest report from the U.S. Bureau of Labor Statistics showed that the U.S. August PPI data fell short of expectations across the board and unexpectedly turned negative month-on-month for the first time in four months, further supporting the case for a Fed rate cut. After the data release, traders increased their bets on a 50 bp rate cut by the Fed in September. According to CME's "FedWatch," the probability of a 50 bp rate cut in September rose to 10%, while the probability of a 25 bp cut was 90%. As expectations for a September rate cut heated up again, U.S. stocks hit new highs.

A rate cut seems almost certain. The author believes that a cautious 25 bp cut is still more likely. After the rate cut, will the U.S. continue to cut rates? Will the crypto bull market continue?

Why is a 25 bp cut more likely?

Although President Trump has called for a "sharp rate cut" of 50 bp or more, and some traders are betting on it, the general market consensus (with a 90% probability according to CME data) remains a 25 bp cut. This is a "hawkish rate cut," meaning the Fed will attempt to manage market expectations while easing, avoiding the appearance of excessive panic. They prefer gradual adjustments, taking a data-dependent approach to leave room for future policy.

A 25 bp cut is more likely because, currently, core inflation indicators have significantly declined from their peaks but may still stubbornly remain in the 2.5%-3.0% range, slightly above the Fed's long-term target of 2%. This gives the Fed reason to begin easing overly tight policies but not too quickly or aggressively.

Moreover, the first rate cut of the year carries immense symbolic significance. A 25 bp cut, coupled with cautious wording in the post-meeting statement, is the safest way to initiate easing without overexciting the market. A 50 bp cut would be interpreted by the market as a sign of serious economic trouble, potentially triggering panic instead.

The first rate cut will mark the beginning of a slow and cautious easing cycle. The market should not expect a return to the zero-interest-rate era seen during the pandemic. A more likely scenario is a 25 bp cut every other meeting (or quarterly).

The pace and endpoint of subsequent rate cuts will entirely depend on whether inflation smoothly returns to the 2% target. If inflation data fluctuates, the Fed may pause the easing cycle or even reassess its policy.

For the Trump administration, against the backdrop of slowing economic growth, lower interest rates are undoubtedly welcome, as they reduce the interest burden on government debt and boost consumer and business confidence ahead of the election cycle. Therefore, the Trump administration will likely continue to support the Fed's decision to cut rates, either publicly or privately.

Short-Term Market Trends After Expectations Are Met

The start of an easing cycle is undoubtedly a structurally significant positive for risk assets, including crypto assets. This first rate cut of 2025, occurring against the backdrop of confirmed receding inflation threats and the need for economic support, carries stronger signaling power and more profound implications. First, the risk-free rate (such as Treasury yields), the anchor for all asset pricing, will enter a downward trend, directly boosting valuations of long-term assets like stocks and real estate. The reduced appeal of holding cash or bonds will drive large-scale capital outflows from safe-haven tools like money market funds and into risk assets. Lower borrowing costs will improve corporate profit margins and stimulate new capital investments, thereby boosting market expectations for future earnings.

If the most likely scenario of a 25 bp cut occurs, since the cut has been widely anticipated, the most probable outcome is a "buy the rumor, sell the news" reaction. As the market has already priced in a 25 bp cut—for example, U.S. stocks have already hit new highs—risk assets may not experience a sharp rally at the moment of the announcement. Instead, they may see a brief pullback or volatility due to profit-taking. The market’s focus will quickly shift to the Fed’s post-meeting statement and Chair Powell’s speech for clues about the future path of rate cuts.

If the Fed unexpectedly cuts rates by 50 bp or releases a very clear signal in its statement indicating sustained rate cuts, it would far exceed market expectations. In that case, risk assets might experience a short, rapid surge. However, they would likely soon pull back, and future market trends would become more complex because a 50 bp cut would be interpreted by the market as a sign of serious economic trouble, which could trigger panic.

Finally, there is a least likely scenario: the Fed cuts rates by 25 bp but uses hawkish wording in its statement,暗示ing that this is the last cut or that the bar for future cuts is high. The market would interpret this as a "hawkish cut," and risk assets could decline in response.

As long as the Fed cuts rates by 25 bp and signals future gradual and sequential rate cuts, macro-wise, crypto assets are likely to continue rising in the long term. Especially if Bitcoin rallies and stabilizes in response, the outlook for altcoins is highly promising, potentially ushering in a strong rebound.

For investors, in terms of specific trading strategies, it is advisable to reduce leverage and prepare capital to buy the dip during potential market spikes.