Market Unrest: Political Pressure on the Fed, Powell's Mixed Signals, and Crypto Volatility Reshaping Asset Flows

The Federal Reserve Under Pressure: Trump’s Moves Threaten Policy Independence

U.S. President Trump’s recent executive order dismissing Federal Reserve Governor Cook marks an escalating challenge to the central bank’s autonomy. According to market observers, this action aims to reshape the Fed’s leadership toward more interest-rate-friendly positions. If Trump successfully replaces Cook with an ally, his preferred appointees would hold a majority on the Federal Reserve Board—a structural shift that threatens the institution’s historical independence.

The market reacted immediately to this development. The U.S. dollar weakened significantly as investors questioned the Fed’s policy direction, while non-U.S. currencies and gold prices surged in response to uncertainty. This political interference has added another layer of complexity to monetary policy discussions, coinciding with ongoing debates around rate-cut timing and magnitude.

Powell’s Jackson Hole Speech: Dovish Tone Masks Real Uncertainty

At the Jackson Hole Economic Symposium, Federal Reserve Chairman Jerome Powell signaled openness to September rate cuts, triggering a wave of “dovish” market sentiment. However, deeper analysis reveals the speech’s limitations. According to research from major financial institutions, Powell did not provide concrete guidance on the duration or magnitude of easing measures. Instead, he clarified the Fed’s “reaction function”—essentially, the bank lowers rates when unemployment risks exceed inflation concerns.

The catch: today’s economic environment doesn’t fit this simple formula. With elevated tariff pressures and stricter immigration policies in place, both employment and inflation risks coexist. If inflation fears dominate, Powell could invoke the same reaction function to pause or halt rate cuts entirely. This creates a critical divergence between market expectations and Fed capability. Economists caution that viewing Powell’s remarks as the starting point for sustained easing would be premature. Should stagflation pressures intensify, monetary policy will face fundamental contradictions, potentially resulting in higher volatility and reduced risk appetite across markets.

Cryptocurrency Markets Navigate Mixed Signals and Technical Pressure

Ethereum’s Record High Masks Volume Concerns

Ethereum (ETH) recently broke through the $4,900 barrier, marking a new historical high. However, trading volume failed to keep pace with price appreciation—a classic divergence signal. Technical analysis from market observers suggests that after this surge, the market exhibited short-term pullback risks. Hourly charts revealed declining momentum, with price action drifting below moving averages and indicators forming a bearish death cross.

Analysts suggest that despite ETH’s headline-grabbing new high, the underlying market structure appears fragile. Without volume confirmation, the $4,900 level may not sustain, and prices could face pressure toward $4,000 in near-term correction scenarios. Current ETH trading at $2.93K reflects the broader market consolidation.

Bitcoin Faces Liquidation Cascades and Sentiment Shifts

Bitcoin (BTC) experienced significant volatility following a liquidation waterfall at the 4,000-point level, pushing prices from $114,000 down to $110,000. This sharp drawdown revealed a sharp division among traders: some view $110,000 as a genuine bottom, while others remain skeptical. Sentiment within crypto communities shifted from cautious optimism to outright bearish concerns following the plunge, despite ETH’s simultaneous surge inspiring some bullish commentary.

The $4,550 retracement level and the $110,000 support zone have become critical focus points, with market participants divided on whether these levels will hold. Bitcoin currently trades at $87.58K, reflecting ongoing price discovery and sector-wide uncertainty.

Institutional and Regulatory Developments

Fed Official Embraces Crypto Payment Technologies

Federal Reserve Governor Christopher Waller, a leading candidate for future Fed Chair, delivered remarks at a blockchain seminar in Wyoming acknowledging the validity of distributed-ledger technologies. Waller explained that cryptocurrency transactions—whether involving stablecoins, smart contracts, or blockchain settlement—fundamentally mirror traditional payment processes: initiation, execution, and record-keeping. He emphasized that there is “nothing to fear” in these mechanisms, noting that the Federal Reserve itself is researching tokenization, smart contracts, and AI applications in payments infrastructure.

This statement signals potential institutional openness to crypto rails, though it stops short of endorsing immediate adoption.

Fidelity’s Ethereum Outlook: Scenarios and Risks

Fidelity’s recent research examines Ethereum’s long-term potential across three scenarios. In a bull-case scenario, Ethereum becomes the global coordination core for reshaping trust and collaboration mechanisms. In a benchmark scenario, it incremental improves specific financial and non-financial applications. In a bear scenario, Ethereum devolves into cyclical speculation without delivering products the broader public needs.

The report notes that while application demand could support ETH price appreciation, Ethereum’s modular scaling approach distributes value capture across layers. Positioned between Bitcoin’s and Solana’s decentralization profiles, Ethereum faces emerging competitive pressures.

Grayscale Expands Spot ETF Offerings

Grayscale filed an S-1 registration statement with the U.S. Securities and Exchange Commission on August 25 for a new Avalanche (AVAX) spot ETF, continuing the firm’s strategy of bringing layer-1 blockchain tokens into regulated investment vehicles.

Bottom Line: Navigating Contradictions

The current market environment presents investors with conflicting signals: political pressure on the Fed undermines clarity, Powell’s dovish commentary masks genuine policy constraints, and technical breakouts in crypto coincide with fragile volume structures. Cryptocurrency volatility will likely persist as traditional finance uncertainty filters into digital assets.