As financial markets anticipate the Federal Open Market Committee’s (FOMC) verdict on January 29, cryptocurrency investors find themselves at a pivotal point. In light of the inaugural crypto executive order issued by US President Donald Trump and the recent DeepSeek price collapse, macroeconomic factors are once again in the spotlight.
Crypto Market FOMC Outlook
Crypto analyst Byzantine General (@ByzGeneral) has determined a consolidation zone between $90,682 and $108,388 for Bitcoin. He anticipates minimal movement ahead of the FOMC assembly, outlining three possible scenarios for how the market may react once the Fed wraps up its deliberations: “As I mentioned in my thread yesterday, we’re merely consolidating within this range ($90,682 – $108,388). And I don’t foresee anything substantial occurring until Wednesday’s FOMC. Then, there are three outcomes, with just two possible results… FOMC unexpectedly dovish -> break out of range, FOMC neutral -> range-bound trading for an extended period, FOMC hawkish -> range-bound trading for an extended period.”
Crypto market participants frequently interpret a dovish approach—one that indicates or implements interest rate reductions or a prolonged pause—as favorable for risk-oriented assets such as Bitcoin and cryptocurrency. A surprising dovish shift could trigger a break from the current trading range, according to Byzantine General. Conversely, a neutral or hawkish perspective might imply an extended phase of sideways price action.
In their evaluation, banking titan ING outlined the broader macroeconomic setting that may impact the Fed’s decision and forecasts for 2025. According to ING: “Federal Reserve poised for an extended pause. Following 100bp of rate cuts, the Fed has indicated it requires evidence of economic fragility and softer inflation figures to justify additional policy relaxation. President Trump’s low taxation and minimal regulation policies should bode well for growth, while immigration policies and trade tariffs present upside risks for prices, implying that we might endure a lengthy wait for the next cut.”
The December FOMC resulted in a 25bp rate reduction, but the following commentary hinted at a slower and more gradual easing trajectory for 2025, potentially amounting to just 50bp for the year. ING highlights that robust economic performance and ongoing inflationary pressures reduce the incentive for the Fed to rapidly decrease rates. The bank also emphasizes a lingering potential for the Fed to adopt a more hawkish stance than publicly recognized thus far:
“In fact, the risk is that the Fed may be more hawkish than indicated… Nonetheless, with President Trump having recently secured re-election and his policy agenda starkly contrasting with President Joe Biden’s, Fed Chair Jay Powell acknowledged that some felt compelled to incorporate the potential policy shifts into their December 2024 forecasts ahead of schedule. However, not everyone did, and since his inauguration, there has been little indication of any moderation in Trump’s key policy initiatives.”
ING’s economists further observe that market participants largely anticipate no policy adjustments on January 29, while the bank itself previously projected a rate cut in March—an event it now considers increasingly improbable: “This implies that no changes to monetary policy is a certainty on January 29, making our earlier prediction of a March rate cut seem unlikely – presently only 6bp of a 25bp shift is factored in by financial markets.”
However, ING continues to foresee three rate reductions in 2025, contingent upon a gradual cooling of the labor market and moderating wage increases. They stress that escalating Treasury yields, increased borrowing costs, and a stronger dollar could collectively tighten financial conditions, ultimately compelling the Fed to act later in the year: “Consequently, we believe that the Fed may need to act more decisively and reduce rates further than what is currently priced in by the markets, although this is expected to be more of a development in the latter half of 2025.”
Regarding the reduction of the balance sheet (quantitative tightening, or QT), ING sees the Fed possibly concluding QT in 2025 if surplus liquidity declines to levels below what the central bank considers comfortable. The bank identifies $3 trillion in reserves as a significant benchmark: “We are presently at US$3.5tn. So we’re at ease. At the same time, the reverse repo balance is sitting at US$125bn, and if that figure were to reach zero, it would signal some level of tightness. That’s nearing, as QT is currently being executed at US$60bn per month. QT may need to conclude by mid-2025 based on a straightforward extrapolation of this.”
Concerning currency markets, ING proposes that the dollar could maintain its strength if the Fed remains cautious about easing: “December’s FOMC meeting certainly bolstered the dollar bull market… it is challenging to perceive the January FOMC event risk being interpreted more dovishly… We doubt the Fed is prepared to counter those market expectations. This should keep dollar rate spreads relatively broad and suggests that the FOMC will not be the catalyst for the dollar’s decline.”
As President Donald Trump embarks on his second term, inquiries about the Fed’s autonomy have resurfaced. Historically, Chair Jerome Powell has sidestepped insinuations of political sway: At the upcoming FOMC gathering, Powell is anticipated to deflect questions about the Fed’s independence and any potential influence from Trump.
The President, however, has been clear about his stance on interest rates. When queried if he expected the Fed to heed his requests for rate reductions, Trump replied: “I would make a strong statement.” When asked if he expects the Fed to comply, he responded, “Yeah.”
At the time of this writing, the total cryptocurrency market capitalization was recorded at $3.45 trillion.
Featured image from Shutterstock, chart from TradingView.com
