The Federal Reserve will make its latest interest rates decision on Wednesday, in what is shaping up to be a consequential week for Bitcoin.
Analysts are widely expecting that the central bank’s chair Jerome Powell will unveil another 0.25 percentage point reduction — to a range of between 3.75% and 4%.
And given that the Fed previously signaled that it is pencilling in two further rate cuts for 2025, we’re expecting to see a repeat performance in December too.
Generally speaking, lower interest rates are good news for BTC — for multiple reasons. The Federal Reserve’s cuts trickle down to savings accounts and bonds, prompting investors to seek healthier returns elsewhere. Increased liquidity also helps capital flow into riskier assets, especially if the dollar ends up weakening as a result.
However, if you’re expecting Bitcoin to surge higher as soon as Powell gives his news conference, prepare to be disappointed. The response on the crypto markets can be pretty muted when a cut is expected — or “priced in.”
Policymakers on the Federal Open Markets Committee have been pretty reluctant to slash the cost of borrowing, despite protests from Donald Trump, with this year’s first cut only coming into effect in September. A month after that announcement, BTC had actually fallen by 8.56%.
FXTM’s senior market analyst Lukman Otunuga told Cryptonews that the Fed’s decision may not end up being the biggest driver for Bitcoin this week, as a multitude of other factors are at play.
US President Donald Trump is set to meet his Chinese counterpart Xi Jinping on Thursday, with the markets looking for signs of a thaw in the escalating trade war between both countries. Trump’s announcement of fresh tariffs on Beijing earlier this month led to a violent correction across major cryptocurrencies.
It’s also a big week for the tech sector — with the likes of Meta, Alphabet, Microsoft, Amazon and Apple all reporting earnings this week. Given these giant companies have a collective market capitalization of $15 trillion, their performance could have a huge impact on the stock market — especially the tech-heavy Nasdaq 100 — which could help Bitcoin nudge higher. Otunuga added:
“Global equity bulls have regained control as optimism over a potential US–China breakthrough sparks risk appetite. But with central banks in the spotlight and Big Tech earnings on deck, markets could be in for another week of sharp twists and turns. Traders should brace for heightened volatility as policy decisions and corporate results dictate sentiment.”
As with most Fed rate decisions, the remarks that Jerome Powell makes at his news conference — indicating where the central bank sees the US economy heading — could prove instructive.
Even though a cut is now regarded as inevitable, not everyone thinks this is a smart move. Bloomberg’s editorial board recently published a piece in which it argued that a pause is more appropriate given there is “enormous uncertainty about where the economy is headed.”
It pointed to how inflation remains stubbornly above the Fed’s target of 2% — and that’s before the true impact of tariffs begins to be felt by consumers. What’s more, with the government shutdown now set to enter a second month, its analysts argue that additional threats could be on the horizon, with crucial statistical releases now being delayed or canceled.
“Understanding the state of the economy would be difficult enough with the data flowing as usual. Without it, the job is next to impossible.”
Looking further ahead, a CNBC survey suggests there is a 54% chance of a third rate cut in January — and overall, it is expected that the Fed’s funds rate will tumble to 3.2% by the end of next year. This could deliver some much-needed relief to borrowers, albeit gradually.
Given Bitcoin’s sensitivity to tech stocks, a bigger threat from this research concerns attitudes surrounding AI — with 80% of participants arguing equities in this still-nascent sector are “extremely or somewhat” overvalued. Economist John Lonski told the publication:
“Once the AI bubble bursts, only the financially strong participants in the AI space will survive.”
Any implosion there could leave BTC exceedingly vulnerable, as it would fuel a risk-off sentiment and dampen appetite for tech equities. While there may be market euphoria at the moment, with the S&P 500 hitting a fresh all-time high as recently as this week, there are no guarantees this will last.
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