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As the US Federal Reserve gets ready to modify interest rates on Wednesday, a wider transformation at the central bank may have significant consequences for crypto markets.
The Fed is anticipated to reduce interest rates tomorrow, in a move that conventionally indicates a surge in crypto markets: Diminished returns on assets like bonds make higher-risk assets such as crypto more appealing.
The projected rate reductions arise amid a political clash and a recent appointment to the Federal Reserve. US President Donald Trump’s administration has accused Fed governor Lisa Cook of mortgage fraud while it seeks her dismissal. Simultaneously, the Senate has ratified White House economic adviser Stephen Miran to the board of governors.
The allegations against Cook and the intention to nominate someone linked to the administration might signify a less independent Federal Reserve, which holds a crucial role in determining crypto policy.
Implications of a Political Federal Reserve on Crypto Policy
The Trump administration aims to oust Cook — a Biden-era designate — as it seeks to exert more influence over the Federal Reserve. On Aug. 25, the White House X page shared a letter in which Trump dismissed Cook, alleging she made fraudulent statements on one or more mortgage contracts.
Cook refuted the claims and declined to resign. Her legal representatives asserted that the accusations were politically motivated and that the White House is “scrambling to construct new rationalizations for its overreach.” Cook herself declared that it is “unprecedented and unlawful.”
On Monday, the appeals court in Washington prevented the White House from removing Cook from her role at the Federal Reserve. This will enable her to retain her position while the matter is ongoing.
This morning, Miran, an economist and chair of the Council of Economic Advisors, who has made some favorable comments regarding crypto previously, was confirmed by the Senate.
His role is temporary — the term concludes in January 2026 — but Miran has refused to commit to resigning as a White House adviser if his term extends beyond Jan. 31.
This has raised concerns among Democratic legislators that the Fed and its monetary policy agenda will become more aligned with Trump’s political objectives.
Related: Trump renews efforts to remove Fed’s Cook ahead of anticipated rate cut
Aaron Brogan, founder of the crypto-focused law firm Brogan Law, informed Cointelegraph, “The Fed possesses considerable authority over banks, and ultimately, banks act as quasi-regulators of the crypto sector by determining who can and cannot obtain financial services.”
“That influence is unlikely to diminish with a less autonomous Fed, but the policy could shift. I would wager it would be more fickle and susceptible to public sentiment.”
A political Fed represents relatively uncharted waters. When asked what a less independent Fed signifies for US monetary policy, Brogan remarked, “Nobody knows.”
“There’s an assumption that a dependent Fed would implement more liberal, excessive monetary policy simply because it is more responsive to public sentiment, which can be volatile. But since we’ve yet to witness it, it remains pure conjecture. In this administration, at least, Trump would likely lower rates.”
Crypto Market Prepares for Federal Reserve Rate Reduction
As legislators in Washington grapple with the fate of the central bank, crypto markets are gearing up for the Fed’s meeting tomorrow, where a rate cut is expected.
Kevin Rusher, founder of the real-world asset (RWA) borrowing and lending ecosystem RAAC, stated to Cointelegraph that “markets are on edge.”
“Resuming the cutting cycle begins to release the $7.2 trillion parked in money market funds, alongside the trillions tied up in outstanding mortgage debt.”
He forecasted that liquidity would flow into alternative yield-generating investments like those in decentralized finance (DeFi) and RWAs.
Alice Liu, research lead at CoinMarketCap, informed Cointelegraph that “high-beta layer 1s” such as Ether (ETH) and Solana (SOL) are particularly influenced by Fed interest rate adjustments.
“These behave like growth tech — more sensitive to liquidity and risk appetite than BTC. Especially as interest rate reductions could likely trigger additional capital injected into risk-on assets, investors may look to allocate extra capital into ETH’s ‘digital oil’ narrative or SOL’s expansion growth,” she mentioned.
She indicated that DeFi tokens become “relatively more appealing” when interest rates decline, enhancing tokens associated with lending/DEX activity.” Bitcoin remains “the premier crypto” and is less sensitive to interest rate fluctuations but can still react “around significant policy surprises and liquidity shifts.”
The Kobeissi Letter noted, “When the Fed cuts rates within 2% of all-time highs, the S&P 500 typically responds positively.” While immediate-term outcomes were mixed, “in 20 of the last 20 times this has occurred, the S&P 500 has ended higher one year later.”
They anticipate a similar outcome this time as well. “There will be more short-term volatility, but long-term asset holders will benefit.”
“Gold and Bitcoin have already sensed this. The consistent upward price movements we’ve observed in these asset classes are pricing in what’s forthcoming. Gold and Bitcoin know that lower rates amidst an already HOT backdrop will elevate asset prices. It’s an optimal time to possess long-term assets.”
The political struggle for the Fed remains unresolved, yet irrespective of who is in charge, low interest rates are a favorable sign for traders.
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