Emily Walker
As the Federal Open Market Committee (FOMC) prepares to announce its decision on January 29, crypto investors are at a pivotal moment. The impact of President Donald Trump’s historic executive order concerning cryptocurrency and the recent DeepSeek price decline have put macroeconomic factors in the spotlight.
FOMC Outlook for the Crypto Market
Crypto analyst Byzantine General (@ByzGeneral) has outlined a range of $90,682 to $108,388 for Bitcoin’s consolidation. He foresees limited activity leading up to the FOMC meeting, presenting three potential outcomes post-meeting: “We are currently consolidating within this range ($90,682 – $108,388). I don’t expect any significant moves until the FOMC meeting on Wednesday. The outcomes could be: dovish surprise – leading to a breakout, neutral – causing prolonged price fluctuations, or hawkish – resulting in continued sideways trading.”
Typically, a dovish Fed approach that hints at interest rate cuts can be beneficial for risk assets like Bitcoin. A surprising dovish turn could lead to a breakout from the current price range, while a neutral or hawkish perspective would likely prolong the sideways price action.
According to banking powerhouse ING, the broader macroeconomic landscape has a significant impact on the Fed’s decisions and forecasts for 2025. ING notes: “The Federal Reserve is poised for a continued pause. After implementing 100 basis points of rate cuts, the Fed is looking for signs of economic distress and softened inflation before further easing. Trump’s policies of tax cuts and relaxed regulations should support growth, but immigration strategies and trade tariffs present price pressures, indicating a potential wait for the next rate cut.”
In December, the FOMC implemented a 25 basis point rate cut, but the messaging suggested a slow easing strategy for 2025, potentially totaling only 50 basis points for the year. ING argues that sustained economic strength and inflation pressures reduce the urgency for quick rate cuts. They also caution that the Fed might lean towards a hawkish stance:
“There’s a risk the Fed may be more hawkish than suggested… With Trump’s re-election and contrasting policies from Biden, Chairman Powell has acknowledged that projections needed to account for potential political shifts ahead of December 2024. However, since then, Trump’s major policy approaches show little signs of change.”
ING’s economists speculate that while a policy shift on January 29 is unlikely, the bank had previously expected a rate cut in March, which now seems improbable. The likelihood of no changes on January 29 is high, with the markets currently pricing in only 6 basis points for a future 25 basis point move.
Nonetheless, ING anticipates three rate cuts in 2025, contingent on a cooling labor market and diminishing wage pressures. They warn that rising Treasury yields, increased borrowing costs, and a stronger dollar could tighten financial conditions, compelling the Fed to act later in the year: “Thus, we propose that the Fed might be prompted to make deeper cuts than the markets currently expect, likely in the latter half of 2025.”
Concerning balance sheet adjustments (quantitative tightening or QT), ING believes the Fed might conclude QT in 2025 if excess liquidity drops below acceptable levels, proposing a $3 trillion reserve as a critical threshold: “We currently have approximately $3.5 trillion. Hence, we are in a comfortable position. However, should the reverse repo balance decrease to zero, it may indicate tighter conditions. QT is being conducted at a rate of $60 billion monthly and could potentially end by mid-2025.”
On currency dynamics, ING asserts that the dollar may maintain its strength if the Fed opts for caution regarding easing: “December’s FOMC meeting provided momentum for the dollar’s rally… It is hard to see the FOMC meeting in January being interpreted in a dovish light. The Fed is unlikely to counter those market expectations, suggesting that the FOMC will not negatively affect the dollar.”
With Trump beginning his second term, concerns about the Fed’s autonomy have been reignited. Chair Jerome Powell has historically sidestepped questions about political influence, and during the upcoming FOMC meeting, he is expected to avoid comments on the Fed’s independence in relation to Trump.
The President has openly shared his perspective on interest rates. When asked whether he anticipates that the Fed will heed his calls for rate cuts, Trump replied: “I would express a strong opinion.” When reiterated if he thinks the Fed will listen, he stated “Yeah.”
As of the latest update, the overall crypto market capitalization is estimated at $3.45 trillion.
