Why are interest rates still "stuck" at high levels even after the Federal Reserve's rate cut schedule has been pushed back?

The latest comments from Fed Chairman Powell have attracted market attention. According to recent news, Powell stated that current interest rates are still sufficiently high, slightly above the neutral level that neither stimulates nor slows economic growth. Behind this seemingly technical statement reflects the Federal Reserve’s cautious stance on monetary policy and also indicates that markets expecting rate cuts may need to wait a bit longer.

The Subtle Shift in the Federal Reserve

Signals from Officials

Recently, multiple Fed officials have spoken intensively. Although their wording varies, their messages are largely consistent: rate cuts are not imminent.

Powell’s phrase “slightly above the neutral level” is key. The neutral interest rate is the level that neither stimulates nor restrains economic growth, meaning current policy is indeed exerting some restraint, but the Fed believes this restraint is still necessary.

Why the hesitation to cut rates?

On the surface, economic data seem to be improving:

• Retail sales in November increased by 0.6% month-over-month, exceeding expectations
• Existing home sales in December hit the strongest level since 2023
• Unemployment rate dropped to 4.4%
• Inflation has rebounded but remains within manageable range

However, the attitude of Fed officials indicates they interpret these data more cautiously. Several officials emphasize that inflation is not yet fully under control, and cutting rates now would be premature. Behind this is a subtle political game— the Trump administration has been urging the Fed to cut rates, but the Fed needs to maintain independence and avoid political pressure.

Actual Impact on the Crypto Market

Changes in Liquidity Expectations

The delay in Fed rate cut expectations directly affects market liquidity outlook. According to relevant information, when Powell and Milan signal dovishness, markets react immediately: Bitcoin surges to $97,000, Ethereum climbs above $3,400.

But the sustainability of this rebound is worth considering. If rate cuts are truly delayed until the end of the year, the market will need other factors to maintain momentum until then. Current reports indicate that “two major Fed officials are simultaneously signaling rate cuts,” but such catalysts have limited duration.

Key Factors in the Dollar’s Movement

Maintaining high interest rates by the Fed directly supports a strong dollar. High rates attract capital flows into dollar assets, which suppresses cryptocurrencies denominated in USD. Although Bitcoin recently hit new highs, this is more a reflection of technical factors and risk appetite rather than abundant liquidity.

Future Key Variables

Inflation Data is Critical

Fed officials repeatedly emphasize “returning inflation to target,” indicating that the trajectory of inflation data will determine the timing of rate cuts. If inflation continues to decline over the coming months, expectations for rate cuts will strengthen; otherwise, they will be pushed further back.

Uncertainty in Trump Policies

Relevant reports mention that Milan has found a new reason for rate cuts—deregulation under Trump. This suggests that policy shifts could alter the Fed’s outlook on the economy. If deregulation indeed stimulates growth, the Fed might be more confident to cut rates earlier; but if it triggers other issues (like inflation rebound), the timing could be delayed further.

Market Sentiment Fluctuations

From current information, the crypto market’s reaction to Fed statements is very sensitive. But this sensitivity can be a double-edged sword—once the market realizes that rate cuts might be very delayed, there could be significant shifts in sentiment.

Summary

Powell’s statement that rates are “slightly above the neutral level” essentially means the Fed is saying: we recognize that policy is restraining the economy, but this restraint remains necessary. Recent intensive comments from Fed officials, while signaling dovishness, overall maintain a cautious tone. The shift of rate cut expectations from “early this year” to “later this year” reflects ongoing vigilance over inflation risks.

For the crypto market, this suggests that the era of abundant liquidity may still be a bit further away. The recent gains are more driven by technical factors and risk appetite rather than confirmed liquidity shifts. Continued focus on inflation data and further Fed statements will be crucial in determining when rate cut expectations will truly materialize.