This week in East Eight District time, multiple Chinese financial media outlets cited the views of Wells Fargo Investment Institute stating that the institution has revised its judgment on the 2026 interest rate path of the Federal Reserve from the previous expectation of "two rate cuts" to "maintaining the interest rate unchanged for the whole year". At a time when the U.S. economy has shown unexpected resilience and the persistent inflation has been repeatedly debunked as "safe," this shift directly points to the market's most sensitive nerve: when will easing truly return? Previously, the consensus around "entering the rate-cutting channel starting in 2026" had become an important anchor for increasing risk preferences in U.S. stocks, bonds, and the crypto market, but now it has been actively cut by one of the core institutions, laying a foundation for repricing asset prices. The real question is no longer "Will there be another rate cut?" but "In what manner and over how long will the persistently high interest rates rebound against all risk assets that rely on low rates for survival and prosperity?"

The Disappearance of Two Rate Cuts: Wall Street's Rewrite for 2026

Before this revision by Wells Fargo, the notion that "two rate cuts are expected in 2026" had been a piece in the mainstream macro narrative. Accompanied by the market's expectations for falling inflation and moderate economic slowdown, some institutions viewed this path as a time coordinate marking the eventual end of the current tightening cycle, gradually being internalized into valuation models by investors: longer-term risk-free rates falling, future cash flow discount factors declining, and asset prices being able to provide early premiums for this.

Now, this piece of the puzzle has been actively removed by Wells Fargo. According to multiple media reports, its latest expectation is: maintaining the interest rate unchanged for the whole year in 2026, no longer providing guidance for "two rate cuts." This means that in its baseline scenario, the stubbornness of inflation, the resilience of the economy, and the willingness of the policy framework to maintain a tightening posture have all been reassessed as "sufficient to support higher interest rates for a longer duration." For the market, this not only pushes the timeline back but also completely removes the section that originally stated "certain easing" from the interest rate path.

Combining the inflation and growth data released by the United States over the past few months, institutions have begun to downplay the earlier imaginations of "inevitable future easing": on one hand, the path of falling inflation has repeatedly been interrupted by factors such as service prices and wage stickiness; on the other hand, consumption and employment have not shown consistent signs of deep recession, and the U.S. economy continues to perform relatively strongly under high-rate conditions. This combination of "a sufficiently strong economy and stubborn inflation" makes it more difficult for institutions like Wells Fargo to continue providing optimistic endorsements for rate cuts.

Therefore, this revision cannot simply be seen as a correction of a "forecast error," but rather as a starting point for Wall Street's overall re-pricing of the future monetary environment: switching from "easing is confirmed, just a matter of time" to "high interest rates may be the norm for a longer time, and easing is no longer a good news that can be drawn at will."

The Collapse of Rate Cut Myths: The Real Cost of High Rate Normalcy

When "high interest rates will last longer" shifts from hypothesis to a more pressured baseline scenario, it is often the financing and credit side of the real economy that feels suffocated first. For businesses, prolonged high interest rates mean continuously high debt rollover costs, increased refinancing difficulties, and expansion and capital expenditure projects need to be selectively evaluated under stricter return requirements, amplifying the debt servicing pressure on marginal companies over time. On the resident level, mortgage and consumer credit rates remain high, suppressing willingness to purchase real estate and make large expenditures; the internal driving force of the economy relies more on support from income and employment, and once employment weakens on the margin, high interest rates could quickly amplify downside risks.

Within the dimension of financial assets, the stock and bond markets have largely relied on "the eventual arrival of easing" to elevate future expectations over the past few years. The weakening of easing expectations means that risk-free rates remain high for a longer time, the discount rate in stock valuation models is hard to adjust down, and corporate earnings need to demonstrate more tangible growth to justify current valuations; the bond market faces the awkwardness of "duration risk" being difficult to hedge through easing premiums; if long-term yields remain high, the long-held bullish logic based on price increases will have to be rewritten.

The Federal Reserve's "longer and higher" stance further spills over into the global asset allocation landscape. High interest rates enhance the attractiveness of dollar-denominated assets, pushing some international capital back from emerging markets and high-risk assets to the U.S., continuously applying pressure to economies that rely on foreign capital and have significant dollar-denominated debt. For global investors, the direction of dollar flows is no longer "equally sharing the benefits when easing returns," but rather reconfiguring based on a trade-off among high returns, safety, and liquidity. This also forces the market to reassess the premium space and tolerance of all risk assets: in a world where financing is more expensive and return requirements are stricter, which stories can still justify their price, and which can only be ruthlessly discounted by the market.

The Misplaced Expectations in the Crypto Market: From Liquidity Illusion Back to Life and Death Questions

In the past few years, the crypto market's dependence on global liquidity easing has been almost naked. Whether it was the exponential rise in the 2020-2021 period in the context of zero interest rates and massive asset purchases, or subsequent rounds of "turning points, rate cuts, and restarting easing" narratives, all were quickly packaged as fuel for the "new round of bull market narrative." The dramatic price increases often preceded improvements in fundamentals (application implementation, revenue models, user growth), and were more about preempting the expectation of "more, cheaper funds will flood in the future."

In sharp contrast is Wells Fargo's baseline expectation of "zero rate cuts" in 2026, which effectively removes the stepping stone of "future flooding of funds" in the minds of crypto investors. Many market participants are still betting that as long as the time is long enough, the Federal Reserve will eventually return to a rate-cutting cycle, and the incremental funds will naturally chase high-volatility, high-elasticity crypto assets again. However, if the normalcy of high interest rates continues for a longer duration, the crypto market will have to face threefold pressure:

First, the living space of leveraged funds is compressed. High financing costs raise the thresholds and maintenance costs for bullish leverage, the destructiveness of liquidation events is more severe under the combination of high volatility and high interest rates, and short-term emotion-driven capital can hardly remain long-term. Second, institutional allocation willingness is constrained. In an environment where risk-free rates provide relatively considerable returns, and the cost-performance ratio of traditional assets is enhanced, crypto needs to compete for weight in institutional asset allocation, requiring a more persuasive return/risk ratio, rather than solely relying on "bull market inertia." Third, the financing environment for miners and project parties worsens. The expansion of computing power, infrastructure construction, and the incubation of ecological projects all require stable and reasonably priced funding sources; high interest rates mean capital is more selective and more sensitive to return cycles, making the model of simply burning money for growth unsustainable.

Under this constraint, the crypto market is likely to be forced to transition from the past "liquidity-driven market" to "fundamental and narrative competition across the high interest rate cycle". Those protocols and assets that possess real cash flow, clear profit models, and rigid demand have the opportunity to survive or even thrive under the pressure of high interest rates; whereas bubbles built solely on stories, emotions, and financial engineering will accelerate their cleansing under the dual challenges of increased financing difficulty and declining risk appetite.

Who is Betting on Long-term High Interest Rates and Who is Gambling on the Return of Easing

In the process of continuously revising interest rate expectations, the participants in this game are not limited to central banks and macro research departments. Different types of funds, including traditional financial institutions, macro hedge funds, and large crypto holders, are betting differently on "how long high interest rates will last." Some traditional institutions are beginning to align with a path similar to that of Wells Fargo, gradually leaning their asset allocation towards shorter duration, higher credit ratings, and targets with stable cash flows, embedding "high interest rate normalcy" into portfolio construction; while some more aggressive macro funds and large crypto holders still hope to bet on "policy will eventually turn," capturing violent revaluation opportunities when a potential easing turning point arrives.

If inflation rises again in the future, or if the economy continues to remain unexpectedly strong under high interest rate suppression, the Federal Reserve's insistence on high interest rates will significantly increase the winning odds of the first type of "embracing high interest rates" funds. They can continue to enhance returns through high coupon and stable assets, while those betting on the return of easing not only have to endure time costs but also face repeated corrections in asset prices under the reality of "interest rates lasting longer and higher."

Conversely, if the economy shows significant slowdown at some stage, with rising unemployment rates, downgrading corporate earnings, and increasing credit events, thus forcing the Federal Reserve to reopen the rate-cutting cycle, then those currently heavily betting on "long-term high interest rates" positions will face the risk of being squeezed: the prices of duration assets may quickly recover, high beta risk assets may achieve excessive rebounds, while the structure benefiting from high rates may see a significant pullback in a short period of time.

Throughout this multi-layered and multi-asset game, the true core variable is time. Whose funds can endure longer periods of uncertain returns, net worth fluctuations, and opportunity costs will have a better claim to be the final price-setters. For the crypto market, this is not just a simple directional choice issue, but rather a question of whether participants can survive across multiple interest rate cycles—without sufficient time and capital buffers, even the correct macro judgment may end up being unable to withstand "the next pullback."

Reassessing the Survival Logic of Crypto Under the Shadow of High Interest Rates

Wells Fargo's revision of the 2026 rate cut expectation to no rate cuts for the whole year sends a clear signal: regardless of whether the Federal Reserve ultimately completely follows this path, the market must prepare psychologically and position-wise for "longer high interest rates." For crypto investors, this means proactively reducing reliance on the distant "flooding of funds," and resetting the starting point for valuation and allocation back to the scarcity, profit model, and sustainable demand of the assets themselves, rather than passively waiting for external liquidity to boost their value.

In a world where inflation and interest rates may fluctuate repeatedly and the policy path continuously reassessed, the importance of diversified allocation and risk management is magnified exponentially. Betting on a single narrative, a single currency, or a single strategy yields very low tolerance under the combination of high interest and high uncertainty; on the contrary, a combination that crosses assets, cycles, and strategies is more likely to maintain relative resilience amid different macro scenario switches.

Ultimately, from a longer-cycle perspective, the winners in the crypto market will not be those speculators who "precisely bet on a specific rate cut point," but rather participants who can build a framework for investment that can traverse different interest rate environments: capable of disciplined risk premium taking during liquidity easing, persisting in digging into fundamental and structural opportunities under the shadow of high interest rates, and always maintaining the positions, patience, and calm needed for survival amid the recurrent shift of emotions and narratives.

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