The Federal Reserve is poised to announce its decision on interest rates, with market participants largely anticipating that no cuts will be made this time around. However, traders are gearing up for an engaging post-meeting press conference led by Chairman Jerome Powell, where his insights could hold significant sway over both traditional and cryptocurrency markets. Key topics likely to emerge include President Donald Trump’s push for affordability policies and concerns about the independence of the Federal Reserve.
Currently, the consensus among analysts is that the Fed will maintain its current rate range of 3.5% to 3.75%. This aligns with Powell’s prior statements in December, indicating that the central bank’s voting committee is not expected to pursue further cuts until at least 2026. Additionally, Federal Reserve President Neel Kashkari has expressed caution, deeming it “way too soon” to consider any rate reductions. Therefore, barring any unforeseen announcements of a rate cut, the upcoming decision is anticipated to be somewhat uneventful.
The crux of the market’s focus will likely center on whether this pause in rate adjustments indicates a hawkish or dovish outlook from the Fed. A hawkish interpretation could see Powell highlighting persistent inflation risks, which would dampen expectations for future rate cuts and place downward pressure on risk assets. Conversely, if Powell leans toward a dovish perspective, he may suggest that this pause is temporary, opening the door for potential cuts that could boost assets like bitcoin.
Morgan Stanley forecasts that the Fed will signal a dovish stance by retaining specific language in its policy statement, which acknowledges that adjustments to the target range are still under consideration. This statement is expected to recognize the economy’s overall strength while keeping options for easing open.
Traders will also be monitoring any dissenting opinions within the Federal Reserve regarding the rate pause. Notably, Stephen Miran, appointed by Trump, is anticipated to argue for a more aggressive approach, advocating for a 50-basis-point cut. An increase in dissenters could strengthen the case for future rate cuts, positively influencing both equities and bitcoin prices.
Although mainstream analysts expect the Fed could lower rates once or twice in the upcoming months, JPMorgan is standing apart, predicting no rate changes this year, followed by potential hikes in the next.
During the press conference, Powell will likely face scrutiny regarding the rationale for maintaining steady rates. He may also be queried about the implications of Trump’s recent affordability measures on key economic variables. According to analysts from ING, Powell could struggle to justify any need for rate cuts given the current strength in U.S. asset markets. The analysts suggest that because of this dynamic, the dollar may strengthen, adversely affecting dollar-denominated assets like bitcoin.
Pwells’s acknowledgment of Trump’s housing affordability initiatives could further complicate market reactions. Trump has set forth plans to invest $200 billion in mortgage-backed securities, which he claims will lower rates and monthly payments. He has also mandated that large institutional investors refrain from purchasing single-family homes that could otherwise go to families. Experts warn that such measures might create inflated housing demand, exacerbating existing inflation concerns.
Moreover, Trump’s tariffs are already influencing economic conditions, with delayed inflationary impacts expected as increased import costs are passed on to consumers.
Lastly, Powell might find himself fielding questions about the Department of Justice investigation targeting him personally, which he perceives as politically motivated due to his reluctance to implement aggressive rate cuts to satisfy Trump. Additionally, bond market volatility linked to Japan’s fiscal challenges might make for another contentious topic, though Powell may choose to sidestep these inquiries while downplaying fears surrounding bond market dynamics.
