FOMC Meeting and Future Macroeconomic Outlook

1. Macroeconomic and Market Environment

The Federal Reserve's May FOMC meeting maintained interest rates, emphasizing the challenge of tariff policy uncertainty to its dual mandate, and adopted a "wait-and-see" strategy. The balance sheet reduction continues to slow, and liquidity needs to pay attention to the debt ceiling and changes in reserves.

The Federal Reserve Chair reiterated that the economic resilience supports patience, and the timing of interest rate cuts depends on tariff progress and data; the June meeting will reassess the situation. It is advised to pay attention to economic data after the tariffs are set to expire in July, with a rate cut of 50 to 75 basis points still possible within the year.

2. Analysis of Capital Flow and Market Structure of Mainstream Coins

external capital flow

• ETF funds: This week, inflows totaled 919 million, with a decrease in inflow volume.
• Stablecoin: 2.549 billion was issued during this period, with an average daily issuance of 196 million, and the issuance level is moderate.

Market Sentiment Indicator

• OTC Premium: The premium of stablecoins continues to decline, showing a significant divergence from prices.

Bitcoin (BTC)

• Technical aspect: The market is in a range of震荡上行.
• On-chain chip distribution: Chip peak returns to around $93,000

Ethereum (ETH)

• The trend is weaker than BTC, ETH/BTC has maintained fluctuations and broke down this week, with funds continuously flowing back to BTC dominance.
• On-chain activity: An increase in active addresses may indicate that a stage of bottom formation is complete.

3. Macroeconomic Review

May FOMC Meeting Summary and Analysis

1. Interest rates unchanged: The Federal Funds Rate is maintained in the range of 4.25%-4.50%, unanimously approved, in line with market expectations.

2. Dual Mission Challenge: Emphasizing the rising risks of uncertainty in economic prospects, with increased risks of unemployment and inflation, where the uncertainty of tariff policies is a key variable.

3. Economic and Inflation Outlook:

   • The economy is steadily expanding, the job market is stable, and the unemployment rate is low.
   • Net export fluctuations affect data, but the overall economy is resilient.
   • The risks of inflation and unemployment rising have intensified due to uncertainty in tariff policies, making it challenging to achieve the 2% inflation target and maximize employment within the year.

4. Interest rate forward guidance: Maintain a cautious attitude, potential rate cuts in the future, but the magnitude and timing will be more prudent, with a slow expected pace of rate cuts.

5. Monetary Policy and Balance Sheet Reduction:

   • Benchmark interest rates and the balance sheet reduction plan remain unchanged.
   • Emphasize the continued reduction of the balance sheet size and a firm commitment to bring inflation back to 2%.

Schedule Reduction and Liquidity Observation

1. Tapering Progress:

   • Starting from June 2024, the pace of the balance sheet reduction will slow down, with the monthly limit for reinvesting maturing U.S. Treasuries reduced from 60 billion to 25 billion, and further decreased to 5 billion in April 2025.
   • The current balance sheet reduction speed is about 40 billion per month, and the balance sheet size has decreased to 6.71 trillion.

2. Liquidity and Treasury Dynamics:

   • After the debt ceiling expires in January 2025, the Treasury will initiate extraordinary measures and rely on short-term Treasury bill financing.
   • The current ON RRP balance is 1.299 trillion, bank reserves are 3.219 trillion, and TGA is 590.4 billion, below the target of 850 billion.
   • It is recommended to pay attention to the decline in bank reserves in July and August, and be wary of the liquidity risk as the Treasury's "X-Day" approaches.

Key Points from the Federal Reserve Chair's Press Conference

1. "Watch and wait" stance:

   • The new government policy changes are significant, and the impact of the tariff policy is highly uncertain.
   • The Federal Reserve needs to maintain stable long-term inflation expectations to prevent price increases from evolving into persistent inflation.
   • The current economic resilience allows for waiting for the situation to become clear, assessing the distance to and the timeline for achieving the dual mission objectives.

2. Dual Mission Balance:

   • No clear priority on employment or inflation, emphasizing that the risks of both are rising.
   • The policy will not be judged by a single unemployment rate figure, but will comprehensively observe employment market data.

3. Monetary Policy Stance:

   • Inflation slightly above 2%, housing and non-housing service data is good, but the outcome of tariff negotiations is unknown.
   • With economic resilience and low waiting costs, once the situation becomes clear, swift action can be taken.

4. Possibility of Interest Rate Cuts:

   • It is currently not suitable for a preventive interest rate cut.
   • Whether to cut interest rates depends on the scale, sustainability of tariffs, and economic data, and the path cannot be determined in the short term.
   • The June meeting will be reassessed, with market expectations for a rate cut in June dropping to 23.2%.

Market and Policy Outlook

1. Federal Reserve Strategy:

   • The May meeting conveyed a cautious wait-and-see signal, awaiting clarification on tariff policies and confirmation of economic data.
   • Maintain policy flexibility and independence under economic resilience and data support.

2. Interest rate cut expectations:

   • The probability of interest rate cuts in June decreased from 30.4% to 23.2%, with an expectation of three rate cuts for the entire year.
   • After the 90-day tariff deferral expires (early July), economic data may decline, and July may be a window for interest rate cuts.
   • A rate cut of 50-75 basis points is expected within the year, and the impact of tariffs in the second half of the year may drag GDP down to below 1%.

3. Economic Data Support:

   • Employment: The average growth rate of non-farm and ADP employment over the past three months is moderate.
   • Consumption: In Q1 2025, the annualized quarter-on-quarter personal consumption expenditure GDP is 1.8%.
   • Inflation: The CPI and PCE in March eased, oil prices at $60 per barrel, and the low base pressure in April weakened.
   • The economy remained strong in the first half of the year due to the pulling effect, while attention needs to be paid to tariff impacts in the second half.

4. On-chain Data Analysis

stablecoin capital flow situation

During the period from April 25 to May 8, the total amount of stablecoins increased to 210.379 billion, with a single cycle issuance of 2.549 billion, the highest in the past four weeks. The average daily issuance slightly decreased compared to the previous period (from 310 million to 196 million), but still remains in the moderate range. Overall, the continuous issuance of stablecoins constitutes a medium-term bullish factor, providing liquidity support for risk assets.

ETF capital flow situation

In the past four weeks, ETF capital flows have shown a rhythm of "rapid warming - peak retreat". This week, the inflow was only $919 million, far below the high levels of late April, indicating that institutional funds are becoming cautious after prices have surged. The market is transitioning from a "capital inflow-driven period" to a "expectation game period", and short-term volatility may increase.

OTC premium

This week, the OTC premiums for USDT and USDC have continued to decline and have fallen into underwater territory, showing an unusual divergence from the price trend of BTC. This "price increase with declining premiums" reverse structure indicates that short-term risks are accumulating, and investors should be wary of potential liquidity withdrawal and price adjustment pressures.

URPD (On-chain Chip Structure)

The first major support level on the chain is around $93,000, and the second major support is around $84,500. BTC encountered resistance near $97,800, pulled back to $93,000, and then surged to $104,000, indicating that on-chain assets have a certain support and resistance effect on the market.

Holding Address Holding Proportion

This week, the on-chain holding structure of BTC shows characteristics of "centralized accumulation, large holders reducing positions, and whales returning."

• 100-1000 BTC addresses increased by 0.14%, indicating that medium-sized funds are continuing to accumulate.
• The number of BTC addresses holding between 1000 and 10000 has decreased by 0.2%, which may reflect a phase of profit-taking or capital dispersion by some large holders.
• The number of BTC addresses between 10,000 and 100,000 increased slightly by 0.12%, possibly indicating that large funds are buying the dip.

Overall, the chips are distributing towards the mid-range addresses, the on-chain structure is trending towards health, which helps the stable development of the mid-term market.

Chart Pattern Analysis

From the perspective of the hourly level, the indicators are about to be repaired, and there is a possibility of further upward movement. We need to be vigilant about the potential pullback caused by the divergence after breaking through $104,000. Below, we need to pay attention to the support around $100,000, as it may oscillate between $100,000 and $104,000 to repair the 4-hour indicators before further upward movement.