In the financial markets, there are often discussions about the relationship between the Fed's interest rate cuts and the bull run in the stock market and the Crypto Assets market. Behind this relationship lies a deep economic logic.

The interest rate cut policy will directly affect bank deposit rates, leading to a large amount of funds flowing out of low-yield bank accounts in search of higher return investment opportunities. Due to limited investment opportunities in the U.S. real economy, these funds often flood into the stock market, driving up stock prices. The positive sentiment in the stock market will then transmit to the Crypto Assets market, driving it to rise in tandem.

In theory, when the Fed adopts a rate hike policy, the increase in bank deposit interest rates should attract funds back, leading to a decrease in capital in the stock market and a decline. However, the reality is not always that simple.

Sometimes, even during a rate hike cycle, we can observe strong performance in the stock market. This seemingly contradictory phenomenon arises from the fiscal policy of the U.S. government. When the Fed tightens the money supply by raising interest rates, the government may simultaneously issue a large amount of treasury bonds. For every dollar of treasury bonds issued, it is equivalent to injecting one dollar of liquidity into the domestic market.

This operation is like a pool, where water is added on one side with interest rate hikes ( and water is added on the other side with the issuance of government bonds ). As long as the speed of government bond issuance is fast enough, it can maintain ample domestic liquidity and continue to support the rise of the stock market. The core purpose of this strategy is to maintain the stability of the domestic stock market and real estate market by increasing domestic liquidity in the context of a tightening global monetary environment.

Understanding these complex economic relationships helps us better grasp market trends, especially in emerging markets like Crypto Assets. As the market continues to develop and mature, the interaction between macroeconomic policies and various asset markets will become increasingly noteworthy.