Synopsis: Fed will likely hold rates steady at 3.5%-3.75% on Wednesday. Powell’s press conference matters most. Dovish words could boost Bitcoin. Hawkish talk or Trump policy comments may strengthen dollar. Traders watch closely.
The Federal Reserve stands ready to announce its rate decision this Wednesday. Almost no one expects it to cut rates. However, traders will pay close attention to Chairman Jerome Powell’s post-meeting press conference. His comments could move both traditional and crypto markets significantly. Moreover, his take on recent hot topics could shift market sentiment instantly.
Powell might signal a “dovish pause,” powering risk assets higher. On the other hand, his explanation of the status quo decision might put a floor under the dollar. The central bank is expected to keep rates unchanged at current levels. Additionally, Powell may face questions on Trump’s housing affordability measures and perceived threats to Fed independence.
Status Quo on Rates Expected
After delivering three back-to-back quarter-point cuts, the central bank will likely stand pat on Wednesday. CME’s FedWatch futures priced in a 96% chance of the Fed holding steady at 3.5%-3.75%. This aligns with the message Powell delivered in December. He said the bank’s voting committee will hold off on additional cuts into 2026.
Source: CME FedWatch Tool
Minneapolis Fed President Neel Kashkari has a vote on the Federal Open Market Committee this year. He recently told The New York Times that he believes it is “way too soon” to cut rates again. Unless the Fed springs an unexpected rate cut, the decision itself is shaping up to be a non-event. An unexpected cut could tank the dollar while boosting bitcoin and stocks.
Hawkish or Dovish Pause
The primary question for traders will be whether the pause signals a hawkish or dovish stance. A hawkish pause scenario involves Powell flagging lingering inflation risks. This would dent rate-cut bets and pressure risk assets lower. A dovish scenario would mean Wednesday’s pause is temporary. Rate cuts would resume in the coming months, potentially lifting bitcoin.
Morgan Stanley expects the Fed to send a dovish signal. The firm anticipates the Fed will retain policy statement wording about “considering the range and timing for further adjustments.” This signals that easing remains on the table. Furthermore, the statement is expected to acknowledge the economy’s robustness while preserving options for future rate cuts.
Watch for dissenters to the Fed’s rate pause. They could amplify a dovish tilt significantly. Trump’s appointee, Stephen Miran, is expected to dissent in favour of a bold 50-basis-point cut. If the number of dissenters grows, it would bolster the case for future easing. This would lift stocks and bitcoin accordingly.
Most observers expect the Fed to cut rates once or twice over the rest of the year. JPMorgan sees no rate move this year, followed by a hike next year. As of now, market participants remain divided on the timing of future cuts.
Also Read: How Japanese Yen Intervention Concerns Are Shaking Crypto Markets
Powell’s Comments
Powell will likely face questions about the rationale for holding rates steady. He may also address the potential impact of Trump’s affordability measures on key macroeconomic variables. According to ING, Powell’s explanation of the status quo rate decision may lift the U.S. dollar. This could potentially weaken greenback-dominated assets like bitcoin.
ING analysts said Powell will struggle to argue that financial conditions are restrictive and need loosening. Given the recent performance of both U.S. asset markets and activity, this could pour cold water on second Fed rate cut notions. This would lift the dollar against the low yielders like the yen and the euro. Instead, the next macro leg lower in the dollar will likely emerge from poor data rather than Fed-speak.
Powell’s potential nod to Trump’s housing affordability efforts could amplify market volatility. Trump recently said he has instructed his representatives to buy $200 billion in mortgage bonds. He claims it will drive down rates and monthly payments significantly. He also issued an executive order requiring large institutional investors to refrain from buying single-family homes.
Observers say these measures could front-load demand, boosting housing inflation. The purchase of $200 billion of mortgage-backed securities risks pulling forward demand. This could inflate prices and skew benefits toward incumbents. On the other hand, the impact of banning large institutional investors from buying single-family homes is likely limited. This is due to small institutional ownership relative to the overall stock.
Additional Issues
Trump’s tariffs are already baked in with a delayed inflationary impact expected this year. Higher import costs will filter through to the final consumer over time. Powell might face questions about the DOJ investigation targeting him personally. He calls it political vengeance for not slashing rates fast enough to suit Trump. He might dodge the probe while downplaying bond market fears.
Powell will choose his words carefully during the press conference. He will stress the importance of Fed independence amid mounting political pressure. Bitcoin was trading around $88,000 recently, showing sensitivity to Fed policy expectations. A dovish pause could extend this momentum significantly. However, hawkish signals or inflationary warnings might lead to a pullback.
The real market-mover lies in Powell’s post-meeting press conference commentary. His nuanced comments could dictate short-term directions for both the dollar and bitcoin. A dovish lean might boost bitcoin but could be offset by discussions on Trump-era policies. This could potentially stabilize the dollar and cap crypto gains. As a result, traders should monitor post-conference reactions closely as bitcoin’s correlation with equities remains high.
Written By Fazal Ul Vahab C H
