The Fed's Rate Cut Expectations Reverse: How Far Can Short-Term Liquidity Drive Go?

Jerome Powell's recent remarks sent two very different signals, requiring careful interpretation by the market.

**Slowing of the Rate Cut Cycle**
The latest Federal Reserve dot plot indicates that there may be only one rate cut in 2026. This is well below the market’s previous expectations. In other words, the Fed is likely to keep interest rates stable in the near term, and a rapid rate cut is unlikely. The optimistic sentiment of a "rate cut wave" should now calm down.

**Short-Term Liquidity Window**
Amid pressure in the overnight lending market, the Fed launched a $40 billion asset purchase program to ease liquidity tensions. It is important to emphasize—this is not equivalent to long-term policies like quantitative easing, but a phased U.S. Treasury bond purchase with a clear time limit. This move exceeded expectations and directly triggered a short-term rebound in the crypto market and stocks.

**Core Contradiction**
The key phrase from this meeting is "take profits when the situation improves." There may be rebound opportunities in the short term, but how sustainable will it be? Much depends on subsequent economic data. Once rate cut expectations are thoroughly dashed and policy support diminishes, the endurance of this rally will be questionable. The future trajectory of crypto assets and traditional assets will be revealed after short-term volatility.