Powell skillfully employed the technique of "expectation management," executing a perfect Tai Chi move. Additionally, he shifted from the anti-crypto rhetoric of December to actively embracing cryptocurrencies (under the premise of regulatory compliance). This allowed the market to gradually stabilize amidst volatility. Specifically, the following points are particularly crucial:

1️⃣ Changes in the Interest Rate Decision Statement

In this interest rate decision statement, the Federal Reserve removed the previous wording: "Inflation has made progress toward the Committee's 2% target," and changed it to "Inflation levels may still be slightly elevated." This change immediately triggered tension in the market, especially as inflation expectations remained high, leading investors to worry that the Federal Reserve would adopt a more hawkish rate hike policy to combat inflation. Coupled with Nick's tweet suggesting that tariffs could lead to rising inflation, the market further intensified its panic regarding the future direction of Federal Reserve policy, with many believing Powell's remarks could be very tough.

2️⃣ Powell's Remarks Reverse Market Expectations

However, during the subsequent press conference, Powell did not come across as tough as the market had anticipated; instead, he provided a more moderate statement. He indicated that while inflation is still slightly high, overall, long-term inflation expectations are stable and have made progress. This alleviated market tension, as Powell did not emphasize the need to excessively tighten the economy through rate hikes to curb inflation.

Regarding the labor market, Powell believes that the current employment market is within a reasonable range and that there is no need to weaken the labor market further to achieve inflation targets. This means the Federal Reserve does not wish to suppress employment to forcibly achieve inflation control, thus avoiding the risks of unemployment and economic recession that could arise from excessive tightening. This statement reassured the market, indicating that the Federal Reserve is focused on healthy economic development rather than merely inflation targets.

3️⃣ Response to Trump's Policies

Powell mentioned in the press conference that the Federal Reserve has consistently maintained "alignment" with government policies, but regarding the Trump administration's changes in fiscal, regulatory, immigration, and tariff policies, Powell stated that he would observe the developments. Here, he used the term "alignment," cleverly indicating that the Federal Reserve would keep its decisions consistent with other government policies, but did not state that it would be directly constrained by executive orders. This left the market with flexible space, preventing investors from overly worrying about the possibility of government intervention in policies.

4️⃣ Outlook on Future Policies

In discussing the future policy path, Powell emphasized that the Federal Reserve is not in a hurry to adjust interest rates, and future policy adjustments will be made gradually based on economic data. He specifically pointed out that there is no need to wait until inflation drops to 2% to lower rates again, but more economic progress needs to be observed. This statement helped the market understand that the Federal Reserve's decisions are flexible and will not involve overly aggressive actions, but rather rely on actual data feedback. Powell's cautious attitude indicates that the Federal Reserve will respond flexibly to economic conditions rather than rigidly executing a specific policy.

5️⃣ Views on Cryptocurrencies

The biggest highlight is Powell's change in attitude towards cryptocurrencies, moving away from the negative rhetoric of December. He believes that establishing stronger regulatory mechanisms in the crypto space is beneficial, especially in terms of banks providing services to compliant clients, as long as risks can be effectively managed. This statement, compared to past conservative positions, indicates that the Federal Reserve's attitude towards cryptocurrencies has become more tolerant, bringing some positive signals to the crypto industry.

In summary: Overall, Powell's "expectation management" strategy in this speech was very successful. He created hawkish expectations in the statement and then calmed the market with moderate remarks, allowing it to recover from panic. This operation not only stabilized market sentiment but also provided more flexibility for future policy paths. Powell neither took an overly tough stance nor was completely dovish, but maintained a relatively balanced position, conveying a clear signal to investors. Through this market operation, it can be seen that the Federal Reserve has demonstrated a high degree of flexibility and thoughtful strategy in the execution of monetary policy, providing stable expectations for future economic development. 🧐

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