The Federal Reserve's first 'hold': Pause on rate cuts, reassessing risk appetite | In-depth analysis of the currency market

I. Core Conclusion: The interest rate meeting is as the market expected — No rate cuts for now, but the policy stance has shifted to a more neutral hawkish position.

Last night, the Federal Reserve announced the January interest rate decision, maintaining the federal funds rate at 3.50%–3.75%, marking the first pause after three consecutive rate cuts. This move is not a shift towards tightening, but rather expresses the policy logic of 'waiting for data before taking action.'

Key Signal Point:

The Federal Reserve's assessment of the current U.S. economy has been upgraded from 'moderate expansion' to robust growth.

Although inflation has fallen somewhat, it is still above the 2% target (core inflation is 'slightly high').

The employment market is stable, and risks in the labor market have been mitigated.

The voting results show that a few officials (2) are inclined toward further rate cuts, but the majority of members prefer to wait and see.

Two, Powell's policy logic: Stabilize mechanisms and balance | do not rush to advance or retreat.

What Powell conveys in the interest rate statement and communication is:

Short-term wait and see - do not easily adjust policies due to market expectations.

Inflation is slightly above the target but has not spiraled out of control - more data is needed to confirm the downward trend.

Future paths depend on data changes - do not rule out adjustments in June or later.

This means that the current policy decisions of the Federal Reserve rely more on dynamic economic data rather than market voices or political pressure (Powell also emphasized the importance of central bank independence).

Three, interpretation of the three most sensitive points in the market.

1) Interest rate 'pause' ≠ continuation of policy easing.

The market previously had expectations for interest rate cuts (especially at the beginning of the year when the seasonal probability of cuts was high), but this time the 'rate cut' did not materialize, and the short-term market needs to reabsorb the risk premium interrupted by the expectations of rate cuts. Compared to the continuous actions of the rate cut cycle at the end of 2025 (a cumulative cut of 75bp), this stop is a turning point in rhythm.

Logic of influence in the currency market:

In the short term, risk assets (such as BTC, ETH) may be sensitive and biased toward bearishness, as the expected easing has not materialized.

But if the data continues to improve, there is still potential for the market to return to the path of interest rate cuts.

2) Inflation and employment data are the 'core variables for future price directions.'

Currently, inflation is still above target, and although the employment market is stable, there are no significant signs of weakness.

The core logic for the Federal Reserve not rushing to cut rates is that it is unwilling to loosen monetary policy prematurely before inflation stabilizes back to target.

This means a return to 'wait and see' for short-term interest rate expectations in the crypto market, reducing the momentum for extreme 'easing expectations to become a bubble.'

But if future data weakens (CPI, core PCE declines), expectations for interest rate cuts may rise again.

3) Internal voting discrepancies indicate an increase in future uncertainty.

The fact that two officials voted in favor of interest rate cuts indicates that hawks and doves are still in conflict.

This means that future interest rate meetings may become increasingly 'data-dependent,' unlike the single trends of the past (such as several consecutive rate cuts or hikes in 2024-25).

Four, summarize the upcoming timeline.

This year's macro narrative in the market should be more interesting than in 2025, let me explain the upcoming timeline in plain language.

At this time, it is expected that there will be at most one interest rate cut in the first half of the year.

The next meeting is in March, and there will be a dot plot.

April is the last interest rate meeting for current Federal Reserve Chairman Powell.

With the new chairman taking office in June, interest rate cuts are very likely to accelerate, and market liquidity will improve (watershed).

The U.S. midterm elections in November should bring about a minor spring market before the end of the year.

Overall, the second half of the year will perform better than the first half.

Five, Summary: The Federal Reserve seeks a balance between 'easing and tightening.'

Last night, the essence of the Federal Reserve's policy was to pause rate cuts rather than reverse the rate cutting cycle. Overall, this meeting had little impact on the market and was fully anticipated by the market.