The Federal Reserve’s first meeting of 2025 is set to maintain the status quo on interest rates, with a decision anticipated to leave the target range unchanged at 4.25%-4.5%. Scheduled for release at 19:00 UTC on Wednesday, the decision will be followed by Chairman Jerome Powell’s press conference at 19:30 UTC. While markets anticipate a non-event, Powell’s remarks on several pressing issues could still sway risk assets, including bitcoin (BTC).
Stable Rates Amid Slower Cuts
The December meeting marked a pivotal turn with a modest 25 basis point rate cut. However, the Fed signaled a cautious trajectory for 2025, sending shockwaves through risk assets. Despite the slower pace of rate adjustments, this week’s decision is widely expected to leave rates unchanged, reinforcing the hawkish guidance laid out in December.
According to Danske Bank, “We doubt this week’s FOMC meeting will be a major market mover as the unchanged rate decision has been well communicated in advance.”
Labour Market and Deportation Dynamics
One of the key issues that may arise during Powell’s Q&A is the potential inflationary impact of large-scale deportations. President Donald Trump’s recent immigration policies could remove up to 10 million workers from the U.S. labor force. Such a reduction in labor supply could tighten the already constrained jobs market, pushing wages higher and contributing to inflation.
Benjamin Picton, Rabobank’s Senior Macro Strategist, noted that “the disappearance of up to 1 million potential workers would add pressure to a jobs market that is already close to full employment. This is inflationary in and of itself.”
Powell’s take on the matter could temper market expectations for future rate cuts, affecting investor sentiment towards crypto and other risk assets.
Debt Ceiling Drama Adds Uncertainty
The U.S. has hit its $36 trillion debt ceiling, prompting the Treasury to deploy extraordinary measures to keep the government running. These measures include spending from the Treasury General Account (TGA), which typically injects liquidity into markets.
While such liquidity could spur risk-taking, it runs counter to the Fed’s ongoing quantitative tightening. Powell’s response to questions about this balance will be critical, as he must avoid sounding overly dovish in a market primed for any signals of policy shifts.
Cooling Rent Inflation Sparks Hope
Leading indicators suggest a slowdown in rent inflation, a major driver of the consumer price index. The Labor Department’s “all tenant rent” index saw a notable deceleration in Q4, rising by just 3.2% year-over-year compared to 5.5% a year ago.
If Powell acknowledges this disinflationary trend, it could provide a tailwind for risk assets, including cryptocurrencies. A softening inflation outlook often raises hopes for a looser monetary stance, which historically benefits the crypto market.
What’s Next for Crypto?
While Wednesday’s meeting may not deliver immediate surprises, Powell’s stance on key issues like labour dynamics, the debt ceiling, and inflation trends could guide crypto market sentiment. Hawkish undertones may limit bitcoin’s upside in the near term, while dovish hints—particularly on inflation—could reignite bullish momentum.
For now, traders and investors will watch closely, as Powell’s remarks could set the tone for crypto and broader risk assets in 2025.
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