The easing of tariffs between the US and China drives the market to pump, the Fed may reassess its monetary policy framework

Last week, the United States and China made significant progress in their meeting in Switzerland, reaching a 90-day temporary tariff reduction agreement. This marks the entry into the third phase of the "reciprocal tariff war" and has achieved notable results.

The financial markets reacted quickly, with US stocks and the cryptocurrency market rapidly eliminating the negative pricing that had arisen from the tariff war. Market participants are now beginning to focus on a new trading paradigm: whether the US economy and employment will experience a recession, and when the Fed will restart the interest rate cut cycle.

The inflation and employment data released this week show that inflation continues to decline, and employment remains temporarily stable, indicating that the impact of the tariff shock is lower than expected. These better-than-expected data drove a significant rise in US stock indices this week, while gold prices saw a substantial drop.

In a significant speech this week, Fed Chair Powell mentioned that he would reevaluate the "monetary policy framework." This could mean that the rate cut cycle will soon be restarted. However, Moody's has downgraded the U.S. government bond rating from Aaa to Aa1, further highlighting the potential risks of the U.S. long-term debt crisis.

Macroeconomics and Policy Trends

The preliminary agreement reached between the U.S. and China shows that the U.S. will reduce tariffs on Chinese goods from a maximum of 145% to 30%, including a 20% "fentanyl tariff" and a 10% basic tariff. China will reduce tariffs on U.S. goods from a maximum of 125% to 10%, and suspend or cancel non-tariff countermeasures implemented since April.

This progress indicates that the impact of the tariff war may be gradually weakening, and it is unlikely to cause an unexpected shock to the global economy in the short term. This also explains why US stock traders have continued to go long this week, driving the three major stock indices to rise significantly.

The economic data released this week shows that the CPI for April has a month-on-month rate of 2.3%, which is lower than expected, marking a decline for three consecutive months. In terms of employment data, the number of first-time unemployment claims is 229,000, in line with expectations. These data indicate that the tariff war has not yet had a substantial impact on consumption, while inflation continues to decline, creating favorable conditions for a restart of interest rate cuts.

Powell stated in his speech that the monetary policy framework introduced in 2020 may no longer be fully applicable in the current economic environment. He mentioned that frequent supply shocks make it difficult for the average inflation targeting to respond, necessitating adjustments to policy to better balance inflation and employment goals. This statement may imply that the Fed will formulate policies based on shorter-term CPI data, thereby increasing its flexibility in responding to policy changes.

However, the debt problem in the United States remains a potential risk factor. This year, the United States needs to add $1.9 trillion in debt, while also facing $9.2 trillion in debt refinancing. If interest rate cuts are not initiated soon, the U.S. government will not only continue to bear high interest costs but may also face difficulties in auctions in the primary market.

Cryptocurrency Market Performance

Bitcoin maintained a high-level consolidation for most of the week, suddenly surging to $106,692.97 on Sunday, ultimately rising 2.24% for the week. From a technical perspective, Bitcoin has been operating above the "first upward trend line" throughout the week, approaching the upper edge of the "Trump bottom." The overbought indicator has seen some correction, and trading volume is comparable to last week.

In terms of capital inflow, the entire market maintained relatively strong capital inflow this week, with a total inflow of $2.527 billion through the two main channels, including $1.880 billion in stablecoins and a total of $647 million in BTC ETF and ETH ETF. It is worth noting that the capital inflow through the ETF channels has shown a downward trend over the past four weeks.

The on-chain lending funds are in an expansion phase, while the contract market is in the secondary expansion phase of this round of market trend.

After Bitcoin returned to $100,000, some bottom-fishing funds took profits. At the same time, with the recovery of liquidity, some long-term holders also made small-scale sales. Overall, the phase of "long hands reducing holdings and short hands increasing holdings" has not yet fully unfolded, and experienced long-term buyers seem to be waiting for higher prices.

According to exchange data, the number of Bitcoins flowing into exchanges this week is 127,226, which has been declining for four consecutive weeks. The scale of outflows from exchanges reached 27,965, the highest since the beginning of this year. This indicates that selling pressure is decreasing while buying demand is increasing, which usually suggests that when external conditions are favorable, the price may rise rapidly.

According to eMerge Engine data, the EMC BTC Cycle Metrics indicator is 0.875, in a pump period.