As Bitcoin (BTC) navigates a challenging market landscape, all eyes are on the upcoming Federal Reserve (Fed) rate decision set for this Wednesday. Observers are hopeful that a shift in the Fed’s quantitative tightening (QT) policy could provide a much-needed boost for the cryptocurrency market.
Understanding the Federal Reserve’s Announcement
The Fed will reveal its latest rate decision at 18:00 UTC, followed by a press conference led by Chairman Jerome Powell at 18:30 UTC. While the Fed is expected to maintain the current interest rate range of 4.25% to 4.50%, market participants will be keenly interested in the Fed’s stance on its QT program. There are growing concerns that QT could hinder liquidity, particularly as the Treasury faces ongoing challenges related to the national debt ceiling.
Since June 2022, the Fed has been gradually reducing its balance sheet, which ballooned to an unprecedented $9 trillion during the COVID-19 pandemic as the central bank acquired assets to stabilize the economy. Recent minutes from the January Fed meeting indicated that policymakers are considering either pausing or slowing this reversal of balance sheet expansion, a move that could signal a potential recovery for Bitcoin.
Market Speculations on Future Policies
Noelle Acheson, author of the Crypto Is Macro Now newsletter, highlighted that Fed Chair Powell previously suggested that the end of QT could occur as early as 2025. If Powell hints at this during the upcoming announcement, it could signify a shift toward a new monetary policy regime where the Fed might resume debt purchases if necessary.
Acheson noted that while renewed quantitative easing (QE) is unlikely in the immediate future, the prospect of increased liquidity from the Fed returning as a significant market player would be welcomed news, especially given the $9 trillion in debt maturities the Treasury is facing this year.
Echoing this sentiment, Lauren Goodwin, an economist at New York Life Investments, stated that an earlier end to the balance sheet runoff would send a dovish signal to the market, potentially invigorating investor confidence.
Traders Weigh In on Fed Expectations
Traders on the decentralized betting platform Polymarket are anticipating a strong likelihood—100% chance, according to current metrics—that the Fed will conclude its QT program before May. This prediction hinges on the central bank increasing its outright holdings of securities on a week-over-week basis by the end of April.
Bank of America Anticipates Conclusion of QT
Investment banks, including Bank of America, project that the Fed is likely to halt QT amid an uncertain economic climate influenced by various factors, including trade tariffs imposed during Donald Trump’s presidency. In a client note dated March 14, Bank of America’s rate strategists suggested that the Fed’s upcoming statement would indicate a pause in QT until the debt ceiling issue is resolved, although they do not anticipate a resumption of QT after the ceiling is addressed.
A pause in QT could also lead to decreased yields on the 10-year U.S. Treasury note, often regarded as the risk-free rate, which could in turn elevate demand for more volatile investment opportunities.
Anticipating Signs of Stagflation
The implications of Trump’s tariffs have intensified inflation risks while threatening economic growth, potentially leading to a stagflation scenario. The Fed’s summary of economic projections (SEP) may reflect these concerns. Any acknowledgment of stagflation risks might delay further rate cuts, which could limit Bitcoin’s recovery in the wake of a QT pause announcement.
According to Acheson, the likelihood of a stagflationary adjustment in the SEP is significant, with projections showing lower GDP growth and higher core personal consumption expenditures (PCE). This could prompt more policymakers to highlight upside inflation risks.
Acheson warned that if the Fed’s projections confirm a stagflationary outlook, market sentiment could sour, particularly among those banking on liquidity injections. Recent data, including U.S. retail sales and regional manufacturing indices, has shown signs of economic vulnerability, while forward-looking inflation indicators have been on the rise, likely influenced by the tariffs.
In conclusion, Bank of America succinctly summarized the situation: “The combination of signals from the latest economic data and implemented policies should lead the Fed to lower growth forecasts while raising inflation estimates this year—a small acknowledgment of stagflation.” The investment bank anticipates that the dot plot will still indicate two rate cuts in 2025 and 2026, maintaining a cautious outlook for the future.
