Fed rate cuts: What can Bitcoin learn from and how to capitalize on future trends?

Author: Anthony Pompliano, Founder and CEO of Professional Capital Management; Translated by: Golden Finance

As expected, the Federal Reserve announced a 25 basis point cut in its benchmark interest rate yesterday. Fed Chairman Jerome Powell subsequently held a press conference, but the information he disclosed had actually been circulating online for months.

In the short term, Powell stated, "Inflation faces upside risks, while employment faces downside risks."

Throughout the press conference, Powell's demeanor betrayed a sense of frustration. He showed neither enthusiasm for the press conference nor any enthusiasm for the challenges facing him.

A key reason for the Fed's current predicament lies in a shift in its policy logic: in previous years, the Fed adhered to a "data-dependent" principle (i.e., basing monetary policy on economic data), but more recently, it has shifted towards the role of "economic forecaster." The Fed, which should have been solely responsible for formulating monetary policy based on existing economic data and real-time indicators, chose to dabble in "forecasting," even taking action based on the prediction that tariffs would drive inflation. The reality, as I predicted from the outset, is that tariffs are not inflation drivers. The "high inflation" the Fed feared never materialized. This means the Fed's forecasts themselves were flawed, and its monetary policy stance of "maintaining higher interest rates for longer" is naturally untenable. However, the Fed's situation is more complicated than it appears—its board of governors is deeply divided on the core question of how interest rates should be adjusted. Heather Long, Chief Economist at Navy Federal, explained: "The situation is outrageous. Looking at the predictions of 19 senior Fed officials for interest rates through 2025, a single chart reveals the tension within the Fed: one advocates for a rate hike; six believe in maintaining current rates; two favor one more rate cut; nine favor two more cuts; and one (presumably Trump's newest appointee, Stephen Miran) advocates for the equivalent of five rate cuts by the end of the year. Currently, the Fed is highly likely to cut two more times, in October and December. But clearly, the game of interest rate policy will continue..." Imagine the extreme disagreement: someone who yesterday advocated for a rate hike, while others hope for five rate cuts by the end of the year. Not only did members disagree on the number of rate cuts, they were even divided over the fundamental direction of whether to raise or lower rates. This phenomenon highlights the inherent problem of human-directed monetary policy: allowing individuals to control the cost of capital (i.e., interest rates) is inherently unsuccessful, as humans often have limitations when making complex decisions. Furthermore, the Fed's decisions are made by a committee, making the process even more difficult—collective decision-making is often a recipe for poor decisions. Even worse, a review of interest rate trends since 2020 reveals a remarkable pattern of fluctuation. Faced with such uncertainty, how should ordinary people plan their lives? In just five or six years, the cost of capital can drop from 2% to 0%, then soar to over 5%, and then fall back to around 4%—such volatility is truly difficult to manage. In fact, such unnecessary and drastic fluctuations could be avoided. Meanwhile, Bitcoin's monetary policy has remained consistent with its "programmed monetary policy" for 15 years since its establishment in 2009. In my opinion, the Federal Reserve could learn a lesson from Bitcoin's mechanics. Finally, it's worth remembering that in 1998, the Federal Reserve cut interest rates by 25 basis points, a move that subsequently fueled the frenzied tech stock rally during the dot-com bubble. As Puru points out, the current situation bears striking similarities to 1998: the Fed is cutting rates amidst a surge in AI-related innovation. If the Fed follows through with its promise yesterday and cuts interest rates multiple times this year, the stock market is likely to experience a significant rally. Objectively speaking, the Fed's policies have always lagged behind the market curve. Yesterday's decision to "back off" and cut interest rates by only 25 basis points was a case in point. But for investors, this conservative move may ultimately be insignificant—the overall market trend is upward, so simply hold on to your assets and ride the wave.