The Fed's interest rate cut expectations are quietly changing the market direction—this is not speculation, but a reality that is happening.

If you are paying attention to the recent decline in U.S. Treasury yields, the weakness of the dollar index, or the recovery performance of assets like gold and Bitcoin, it is not difficult to find that the market has begun to position itself in advance for the Fed's possible "policy shift."

Why is the expectation of interest rate cuts heating up at this time?

Data doesn't lie. The latest released core PCE year-on-year growth rate has fallen to 2.6%, gradually approaching the Fed's policy target of 2%; meanwhile, the job market continues to slow down, with new jobs falling short of expectations and wage growth also stabilizing.

All of this seems to indicate that the risk of inflation reigniting is decreasing, while the resilience of economic growth is beginning to weaken.

The Fed is thus caught in a dilemma:

· Maintaining high interest rates may suppress consumption and investment, and even trigger corporate debt risks;
· Lowering interest rates too early, while worrying about inflation rebound.

But the market often moves faster than policy. When U.S. Treasury yields fall, the dollar retreats, and risk assets rebound, investors are actually voting with their actions: they expect that the Fed may initiate a symbolic rate cut in the first or second quarter of next year.

How do interest rate cut expectations affect global capital?

To understand this, it is essential to realize that the Fed interest rate is essentially the "anchor" for the global cost of capital.

When interest rates rise, funds tend to flow back to dollar assets, putting pressure on risk assets.
When expectations of interest rate cuts strengthen, the expectation of improved liquidity will drive funds to flow back into the stock market, technology sector, and even the cryptocurrency market.

We have witnessed this mechanism at work many times:

· After the interest rate cuts following the pandemic in 2020, U.S. stocks and Bitcoin rose simultaneously;
· In 2022, interest rate hikes began, the US dollar strengthened, and risk assets responded with a pullback;
· Nowadays, the market seems to once again be on the eve of a liquidity recovery.

This can also explain why the prices of cryptocurrency assets such as Bitcoin and Ethereum have gradually stabilized recently, and even rebounded.

Why are the cryptocurrency market and interest rate cut expectations closely related?

In the cryptocurrency market, which lacks a "central bank backstop," sentiment and US dollar liquidity almost determine the short-term trend.

In simple terms:
Interest rate cut expectations → Decrease in funding costs → Increase in risk appetite.

For institutional investors, the allocation logic is very clear:
When bond returns decrease and cash yields shrink, they will naturally turn to more volatile and potentially higher-yielding crypto assets.

In addition, Bitcoin is about to experience a halving, and Ethereum's staking yields are stabilizing. If these internal dynamics resonate with the improvement in external liquidity, it may open a rare upward window for the crypto market.

Caution: Expectation ≠ Reality

It is necessary to be clearly aware that: the market can react in advance, but policies will not simply change due to expectations.

From historical experience, the Fed typically needs to confirm the following signals before initiating interest rate cuts:

· Inflation has definitively returned to the target range;
· The job market shows significant signs of weakness;
· The financial system is exposed to certain risks.

The current U.S. economy is still in a stage of "slowing growth but not recession," so the pace of interest rate cuts is expected to be slow, and the intensity will not be too aggressive.

Summary: The warm wind has arrived, but spring has not yet come.

The rising expectations of interest rate cuts by the Fed have indeed brought a long-awaited warmth to global risk assets—especially the cryptocurrency market.

But rationality is still indispensable:

Policy shifts are often accompanied by a decline in economic growth momentum.
· Expectations that run too fast may also trigger market fluctuations when data is inconsistent.

For investors, it feels more like a preparation period before dawn now:
The market is bottoming out, sentiment is recovering, and policies are being formulated.

The real trend opportunity still requires waiting for the dual confirmation of data and policy.

In a word:
The expectation of interest rate cuts is like a warm breeze in winter, giving people hope, but whether spring has truly arrived depends on when the Fed actually opens the door to easing.