Fed strikes the crypto market: Powell warns that tariff-induced inflation triggers a big dump in Bitcoin, with the probability of a September rate cut plummeting to below 50%!

The Fed's FOMC meeting in July maintained the interest rate at 4.25%-4.50%, marking the fifth consecutive time of "holding steady." Chairman Powell warned of the "initial effects of tariff inflation," suggesting that inflation may continue to rise in the coming months, leading to a sharp drop in expectations for interest rate cuts in September. Market panic triggered a flash crash of Bitcoin to $116,000 (a daily fall of over 1.5%), while the dollar index soared to a three-month high. Analysts pointed out that if tomorrow's PCE inflation data exceeds expectations, the crypto market may face a deeper pullback.

1. Interest Rate Decision and Rare Disagreement: First Dual Opposition Vote in 30 Years

1. Policy Remains Unchanged The Fed kept the benchmark interest rate unchanged with a 9-2 vote, in line with market expectations. The statement emphasized that inflation "remains high," the economic outlook is highly uncertain, and removed the wording "economic robust expansion," instead acknowledging "slower growth in the first half."
2. Internal rifts made public Board members Waller (Christopher Waller) and Bowman (Michelle Bowman) cast dissenting votes, advocating for an immediate rate cut of 25 basis points—this is the first time since 1993 that two board members have simultaneously opposed a resolution. They believe the risks of a deteriorating labor market are underestimated, and a rate cut could stimulate employment; however, the majority of members insist that the 4.1% unemployment rate is close to full employment, and an early rate cut may trigger a rebound in inflation.

2. Powell's Hawkish Tone: Tariff Inflation Becomes Core Concern

1. Inflation Path Warning Powell made it clear: "This is only the starting point of tariff inflation," with 30%-40% of core inflation driven by tariffs. If the reciprocal tariffs come into effect on August 1, inflationary pressures will further intensify. He expects the June core PCE to rise by 2.7% year-on-year and the overall PCE to rise by 2.5%, but admits that "the clarity of the data may be difficult to reveal before September."

2. Interest Rate Path Ambiguity The Fed has "not yet made any decisions regarding the September meeting", and decisions will strictly depend on data. Powell emphasized that the current policy stance is "in a favorable position", with the primary task being to prevent "a one-time price increase from evolving into persistent inflation". This statement led to:

   • September interest rate cut probability plummeted from 63% to 47.1%
   • Full-year interest rate cut expectations have shrunk from 44 basis points to 36 basis points.

3. Market Chain Reaction: Bitcoin flash crash, US Treasuries sold off

1. Panic selling of risk assets

   • Bitcoin: During Powell's speech, it flash crashed from $117,500 to $116,000, with a maximum fluctuation of over 1.5% in 24 hours.
   • Gold: Plummeted $50 in a single day, hitting a new low in a month.
   • US stocks: The Dow fell 0.65%, the S&P 500 dropped 0.35%, and only the Nasdaq rose slightly by 0.15%.

2. The US dollar and US bond yields surge

   • The dollar index skyrocketed to 98.90, hitting a new high since May.
   • The 10-year US Treasury yield surged to 4.38%, and the 2-year approached 4%, reflecting aggressive market bets on "longer-term high interest rates."

Four, Chain Reaction in the crypto market: Leverage Liquidation and Cycle Peak Signals

1. On-chain data warning

   • Whale Sell-off: The giant crocodile from the Satoshi era sold $900 million worth of BTC in one go through Galaxy Digital, setting a record for the largest crypto exit in history.
   • Institutional Withdrawal: Coinbase premium turns negative, and the South Korean Kimchi premium remains negative, indicating a simultaneous shrinkage in institutional demand from the US and Asia.
   • Cycle Peak Signal: Bitcoin MVRV ratio reaches 2.34, approaching the historical bull market peak range; the options market sees the largest single bearish bet in history (target price below $110,000).

2. Macroeconomic Suppression of Encryption Narrative In a high interest rate environment, companies like MicroStrategy and Metaplanet, which are involved in "Bitcoin treasury bonds," have paused their purchases, with funds shifting towards low-risk US Treasury bonds. Analysts warn that if the Fed does not lower interest rates in September, BTC may see a repeat of the "double top camel formation" of 2021, triggering a deep bear market.

5. Outlook: PCE data determines life and death, policy shift awaits the third quarter

1. Tomorrow's Battle on PCE The core PCE data for July (the inflation indicator most valued by the Fed) will be released on August 1. If the monthly increase exceeds 0.3%, the probability of a rate cut in September may further collapse; conversely, if it is below expectations, it may trigger a rebound in risk assets.

2. Key Points of Policy Breakthrough

   • September Window: If the employment data in August and September deteriorates significantly or if tariff inflation is confirmed to be "transitory", the Fed may urgently cut interest rates (current probability 49.6%).
   • Political Game: Trump continues to pressure for interest rate cuts, but Powell clearly rejects "politically driven monetary policy", putting the independence of the Fed to a severe test.

Conclusion: Under the "eagle claw" of the Fed, the crypto market and risk assets are stepping into a high-pressure danger zone. The short-term volatility of Bitcoin is likely to continue to rise, with the $110,000 level becoming the front line for the bulls and bears. Investors need to closely monitor tomorrow's PCE data and the impact of August tariffs, being wary of the liquidity tightening triggered by the "inflation-interest rate" dual spiral. Historical experience shows that the delay period for policy shifts is often the most perilous volatility furnace for asset prices—de-leveraging, controlling positions, and holding cash are essential to maintain one's stakes in the storm.

Risk Warning: The content of this article is for informational reference only and does not constitute any investment advice. The crypto market is highly volatile, and readers are advised to make rational decisions and assume their own risks.