The first Federal Reserve (Fed) meeting of 2025 will conclude on Wednesday, with the rate decision scheduled for release at 19:00 UTC. It will be followed by Chairman Jerome Powell’s press conference at 19:30 UTC.
The Fed’s ongoing target range for interest rates is 4.25% to 4.5%, which has declined by 100 basis points since September. The December meeting saw a 25 basis point rate cut, but the accompanying press conference and forecasts signaled slower rate cuts for 2025, sending risk assets, including bitcoin (BTC), lower.
However, Wednesday’s meeting is largely being seen as a non-event for markets, including cryptocurrencies, as policymakers are expected to hold rates steady while maintaining the hawkish forward guidance from December.
“We doubt this week’s FOMC meeting will be a major market mover as the unchanged rate decision has been well communicated in advance back in December. The minutes revealed participants have already made some preliminary assumptions on Trump’s policies, but given the considerable uncertainty, we doubt Powell will feel comfortable providing markets with any strong guidance,” Danske Bank said in a note to clients Tuesday.
That said, Powell will likely face questions on the following key issues, and his responses could move markets.
President Donald Trump is already making good on his campaign promises to eject illegal immigrants from the U.S., with deportation flights rolling out over the weekend. Per estimates, total deportations could range from one million to 10 million.
Analysts anticipate that substantial deportations will bolster labor market strength and contribute to inflation. If Powell shares a similar perspective, it could dampen expectations for rate cuts, potentially leading to a decline in risk assets.
“The disappearance of up to 1 million potential workers from the U.S. labor force would be no small thing. Given the strength of Friday’s (December) payrolls report, a tightening in the U.S. labor supply would add further pressure to a jobs market that is already showing signs of tightening and has an unemployment rate close to the full-employment level,” Rabobank’s Senior Macro Strategist Benjamin Picton said in a note to clients early this month.
“That is inflationary in and of itself, and that is before we consider the additional impacts of tax cuts and tariffs,” Picton added.
The U.S. hit its self-imposed debt ceiling of $36 trillion last week, leading to the Treasury starting extraordinary measures to keep the government functioning. One of the measures involves running down the government’s checking account at the Fed called the Treasury General Account (TGA).
The TGA spending usually eases liquidity conditions in the economy and markets, spurring risk-taking. That might counter the effects of the Fed’s ongoing quantitive tightening (balance sheet normalization process).
Powell might get questions on the same and may look to avoid sounding dovish while the TGA spend adds liquidity to the system, thus capping the upside in risk assets for now.
Leading indicators point to a moderation in shelter inflation, which has an outsized influence on the consumer price index.
“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,” Wall Street Journal’s Chief Economic Correspondent Nick Timaros said on X last week.
Risk assets could surge if Powell acknowledges the disinflationary trend in the leading indicators of shelter inflation.
