The Federal Reserve is set to announce its rate decision and almost no one expects it to cut rates.
However, traders will pay close attention to Chairman Jerome Powell’s post-meeting press conference, which could contain the real intrigue.
His take on what to expect in the coming months and on recent hot-button topics, including President Donald Trump’s affordability policy push and threats to the Federal Reserve’s independence, could move both traditional and cryptocurrency markets.
Let’s dive into what’s priced in and how Powell’s comments could move markets.
Tariff status quo
After making three consecutive quarter-point cuts, the central bank is expected to hold firm on Wednesday. As of Friday, CME FedWatch futures were pricing in a 96% chance that the Fed would hold steady between 3.5% and 3.75%.
This is consistent with the message Powell conveyed in December, saying that the bank’s voting committee will postpone further cuts until 2026. Additionally, Minneapolis Federal Reserve President Neel Kashkari, who has a vote on the Federal Open Market Committee this year, recently told the New York Times that he believes it is “too soon” to cut rates again.
So unless the Federal Reserve makes an unexpected rate cut, which could sink the dollar while boosting bitcoin and stocks, the decision itself is shaping up to be a failure.
Hawk or moderate pause?
However, the main question for traders will be whether the impending pause in rate cuts signals a hawkish or dovish stance.
An aggressive pause scenario involves Powell signaling lingering inflation risks, denting rate cut bets and putting downward pressure on risk assets. A dovish scenario would mean Wednesday’s pause is temporary and rate cuts would resume in the coming months, potentially boosting bitcoin.
Morgan Stanley expects the Fed to send a dovish signal by keeping the wording of the policy statement “considering the range and timing for further adjustments to the target range,” indicating that easing remains on the table. The statement is expected to recognize the strength of the economy while preserving options for future rate cuts.
Watch for dissenters from the Fed’s rate pause as they could amplify a dovish tilt. Trump appointee Stephen Miran is expected to dissent in favor of a bold 50 basis point cut. If the number of dissidents grows, it would strengthen the case for future easing, lifting stocks and bitcoin.
For now, most observers except JPMorgan expect the Federal Reserve to cut rates once or twice over the rest of the year. JPMorgan sees no movement in rates this year, followed by an increase next year.
Status quo and affordability measures
Powell is likely to face questions about the rationale for keeping rates steady, as well as the potential impact of Trump’s affordability measures and related issues on key macroeconomic variables.
According to ING, Powell’s explanation for the status quo rate decision may boost the US dollar, potentially weakening dollar-dominated assets like bitcoin.
“Given the recent performance of both asset markets and US activity, you will struggle to argue that financial conditions are restrictive and need to be eased. This could pour cold water on the notion of a second Fed rate cut and this would lift the dollar against underperformers like the yen and euro,” ING analysts said.
“Instead, the dollar’s next macroeconomic decline will likely have to arise from poor data and not Fed jargon,” they added.
Powell’s possible recognition of Trump’s housing affordability efforts as inherently inflationary in the near term could amplify market volatility.
Trump recently said he had instructed his representatives to buy $200 billion in mortgage bonds, claiming it would lower rates and monthly payments. He also issued an executive order requiring large institutional investors to refrain from purchasing single-family homes that families might otherwise purchase.
Observers say these measures could anticipate demand, driving housing inflation.
“The purchase [of] $200 billion in mortgage-backed securities risk fueling demand, inflating prices and skewing profits toward incumbents. “On the other hand, the impact of prohibiting large institutional investors from purchasing single-family homes will likely be limited, given the small institutional ownership relative to the total stock,” Allianz Investment Management said in a note.
Keep in mind that Trump’s tariffs are already in place and a delayed inflationary impact is expected this year, as higher import costs trickle down to the end consumer.
Finally, Powell could face questions about the Justice Department investigation he is personally leading, which he calls political vendetta for not cutting rates quickly enough to satisfy Trump, and about recent bond market volatility stemming from Japan’s fiscal woes. It could dodge the investigation and downplay bond market fears.
