The market is on high alert as Federal Reserve Chair Jerome Powell’s upcoming statements take center stage. Unlike last year’s crash, this time, the real market impact will unfold after the meeting, even though no rate changes are expected.
Although the Fed’s decision on January 31 is expected to be a non-event, Powell’s comments could cause volatility in risk assets like Bitcoin. Bitcoin has dropped to $102K after reaching an all-time high of $109K earlier this month.
What to Expect from the Fed’s Decision
The Fed is likely to keep interest rates unchanged in the range of 4.25% to 4.5%. This follows a 25 basis point cut in December, but policymakers have signaled that rate cuts will slow down in 2025. As a result, this meeting is expected to be a non-event for most markets, including cryptocurrencies, as the rate decision has already been communicated.
Meanwhile, former President Donald Trump has expressed his preference for deeper rate cuts to support crypto assets.
Three Key Issues Powell Might Address
While the rate decision seems straightforward, Powell might face tough questions on three major issues that could impact markets.
Immigration and Its Effect on Inflation
One topic likely to come up is immigration. President Trump has started deporting illegal immigrants, with some estimates suggesting millions could be removed. If this happens, the U.S. could face a labor shortage, leading to higher wages and pushing inflation up. If Powell agrees that this is a risk, it could mean fewer rate cuts ahead, which would be bad for Bitcoin and other riskier assets.
The U.S. Debt Ceiling and Its Consequences
The U.S. has reached its $36 trillion debt ceiling, and the government is using emergency measures to keep things running. One of these measures involves accessing a special account at the Fed, which could add extra cash to the economy. This might help risk assets like Bitcoin in the short term. However, Powell could downplay the impact of these measures, which could keep markets cautious.
Rent Inflation and Its Impact on Consumer Prices
Another topic Powell could address is the recent moderation in rent inflation, which plays a key role in the consumer price index (CPI). If Powell acknowledges this disinflationary trend, it could provide a boost to the crypto market and drive up risk assets like Bitcoin.
The Labor Department’s “all tenant rent” index, which leads shelter inflation in the CPI, rose at a much slower pace last quarter.
It was up 3.2% over the four quarters ended Q4 (vs. 3.9% in Q3 and 5.5% one year ago). It’s very close to the 3.1% average between 2017-19 pic.twitter.com/DLNqIoAZYP
— Nick Timiraos (@NickTimiraos) January 22, 2025
Bitcoin and the Crypto Market: A Snapshot
After the Fed’s meeting, Bitcoin fell by 1.15% in the last 24 hours, trading at $102,134.33. However, Bitcoin still holds a dominant 58.30% market share, with a market cap of $2.08 trillion. Institutional interest remains strong, with BTC Spot ETF inflows of $18.44 million on January 28.
Despite this, overall trading volume of $42.81 billion suggests caution ahead of the FOMC decision. Ethereum and Solana saw larger losses, with ETH down 3.14% to $3,118.79 and SOL dropping 5.52% to $230.09, while XRP remained relatively stable with a 0.52% dip to $3.10.
Never Miss a Beat in the Crypto World!
Stay ahead with breaking news, expert analysis, and real-time updates on the latest trends in Bitcoin, altcoins, DeFi, NFTs, and more.
As Powell’s statements approach, market participants will be closely watching for any hints of policy changes that could influence the future of risk assets like Bitcoin.