Crypto Assets investors take note, the upcoming policy meeting of the Fed is far more complex than anticipated. Instead of firmly believing that interest rate cuts are a certainty, it is better to prepare for various possibilities.

In the current situation, the Fed is facing severe challenges. On the one hand, due to the government shutdown, key economic data such as September non-farm payrolls and the Personal Consumption Expenditures (PCE) index cannot be obtained in a timely manner, resulting in significant flaws in the decision-making basis. On the other hand, recent economic data show a contradictory situation of weak employment but rising inflation, which greatly increases the difficulty of policy formulation.

The two main focuses of the meeting are undoubtedly the direction of adjustments to the economic assessment and the fate of the balance sheet reduction plan. In terms of economic assessment, the average new jobs added from June to August was only 29,000, while the core PCE rose from 2.3% in April to 2.7% in August. This situation of a weak job market coexisting with inflationary pressures has put decision-makers in a dilemma between stimulating growth and curbing inflation.

Regarding the balance sheet reduction plan, Powell has previously hinted at a possible pause in the coming months. Currently, the Fed has significantly reduced the monthly reduction of U.S. Treasury holdings from $25 billion to $5 billion. The market widely expects that this meeting may announce the termination of the balance sheet reduction, which will undoubtedly be seen as a form of indirect easing policy.

However, there are significant differences within the Fed regarding the direction of policy. Hawkish individuals, such as the president of the Kansas City Fed, believe that the current interest rate level is moderate and worry that premature easing could trigger a rebound in inflation. They point out that inflation has been above the 2% target for more than four years, and continued easing could sow long-term risks. In contrast, the dovish camp, including the newly appointed Fed governor, believes that the current interest rate is too high and advocates for a more accommodative policy stance.

In the face of such a complex situation, the Crypto Assets market is likely to experience a round of severe fluctuations. Investors should remain vigilant, closely monitor the meeting outcomes and their impact on the market, and prepare for various possibilities. During this period of uncertainty, flexibly adjusting strategies and controlling risks will be key.