Recently, the large-scale tariff policies implemented by US President Trump have been causing turmoil in global financial markets, with all risk assets under tremendous pressure. Wall Street institutions have also warned that the risk of global economic recession is continuously rising.
In this context, many analysts point out that high tariffs may further push up inflationary pressures. To avoid an economic recession, although the Federal Reserve (Fed) previously predicted a slowdown in interest rate cuts this year, it may now be forced to adopt interest rate reduction measures to stabilize the situation due to the tariff storm.
KAS of the Federal Reserve: Fed Will Not Easily Lower Interest Rates
However, regarding the optimistic view of expecting the Fed to lower interest rates quickly, Federal Reserve official KAS recently made a speech releasing a hawkish signal. He stated that although Trump's tariff plan is "much higher and broader than expected" and may weaken investment and economic growth while pushing up short-term inflation, the Fed is unlikely to quickly lower interest rates under tariff pressure. He explained:
Due to the existence of tariffs, the threshold for adjusting interest rates has been raised. Maintaining the stability of long-term inflation expectations is crucial, and tariffs may push up short-term inflation, which means that even if unemployment rises, the conditions for lowering interest rates become more stringent.
He also pointed out that recent inflation expectation indicators have begun to rise. Combined with the high inflation experience in the US in recent years, the Fed must prioritize ensuring that long-term inflation expectations do not get out of control, rather than rushing to stimulate the economy through interest rate cuts.
Not Ruling Out More Restrictive Monetary Policy by the Federal Reserve
Additionally, another Federal Reserve official with voting rights on interest rate resolutions this year, Alberto Musalem, also stated yesterday that US economic growth might significantly slow down to below the trend level.
He clearly stated that while his baseline prediction is not an economic recession, multiple factors could lead to growth slowdown. Meanwhile, price increases brought by tariffs may not be just a short-term impact. He emphasized that if inflation expectations deviate from the Federal Reserve's 2% target and continue to rise, it might even force the Federal Reserve to adopt a more restrictive monetary policy, such as maintaining or raising interest rates, instead of the market's previous expectation of interest rate cuts.
Bitwise Investment Chief: Bit Might Benefit from Tariff Storm
The view of the two officials that the Fed will not quickly lower interest rates in the short term will undoubtedly disappoint investors who urgently hope for interest rate cuts to save the cryptocurrency market. However, it is worth mentioning that Bitwise Investment Chief Matt Hougan recently analyzed this tariff storm from another perspective and believes that tariffs themselves might bring benefits to Bit.
Hougan first cited the speech by White House Council of Economic Advisers Chairman Steve Miran this week, pointing out that the Trump administration might be intentionally allowing the US dollar to depreciate, even at the cost of sacrificing its status as the sole global reserve currency:
White House Council of Economic Advisers Chairman Steve Miran delivered a speech on Monday, focusing on the reserve currency role of the US dollar. Miran stated that the strong position of the US dollar suppresses the US manufacturing industry and distorts the currency market.
The potential implication is clear: the US dollar needs to decline. What I am most certain of is that the Trump administration might intentionally allow the US dollar to depreciate, even at the cost of sacrificing its status as the sole global reserve currency.
Hougan thus pointed out that since 2020, Bit and the US Dollar Index (DXY) have usually shown a divergent state, meaning that when the US dollar declines, Bit typically rises. He predicts this pattern will continue, stating:
In the long run, tariffs may accelerate the global de-dollarization process and prompt countries to turn to hard currencies like Bit and gold, with Bit potentially playing an important role in a more decentralized reserve currency system.
In this situation, Bit's situation is simple: When international dynamics are challenging and global currencies are constantly changing, where else can investors find a scarce, global asset that is not controlled by any government or entity?
