The first Federal Reserve (Fed) meeting of 2025 is set to wrap up on Wednesday, concluding with the highly anticipated interest rate decision at 19:00 UTC. Following this release, Chairman Jerome Powell will conduct a press conference at 19:30 UTC, which is expected to shed light on the Fed’s monetary policy outlook for the year ahead.
Currently, the Fed’s target range for interest rates stands at 4.25% to 4.5%, a decrease of 100 basis points since September. The December meeting featured a modest 25 basis point cut; however, the accompanying press conference and subsequent forecasts hinted at a more measured approach to rate cuts in 2025. This communication led to a downturn in risk assets, including bitcoin (BTC), as market participants adjusted their expectations.
This week’s Fed meeting is widely considered to be a non-event for markets, including the cryptocurrency space, as it is anticipated that policymakers will maintain the existing rate while reinforcing the hawkish tone established in December. According to Danske Bank, “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.”
Nevertheless, Powell is likely to face inquiries on several critical topics that could influence market reactions:
Deportation of Illegal Immigrants
President Donald Trump has begun executing his campaign promises to deport illegal immigrants, with reports of deportation flights already in motion. Estimates suggest that this could result in the deportation of between one million to 10 million individuals. Analysts predict that significant deportations may enhance labor market robustness while simultaneously contributing to inflationary pressures. Should Powell align his views with this perspective, it may temper expectations for further rate cuts, potentially negatively impacting risk assets.
Rabobank’s Senior Macro Strategist, Benjamin Picton, noted, “The disappearance of up to 1 million potential workers from the U.S. labor force would be no small thing. Given the strength of the recent payrolls report, a tightening in the U.S. labor supply would add pressure to a jobs market already displaying signs of constriction, with an unemployment rate near full employment levels.” He further elaborated, “That is inflationary in and of itself, especially when considering the additional impacts of tax cuts and tariffs.”
U.S. Debt Ceiling
The United States recently reached its self-imposed debt ceiling of $36 trillion, prompting the Treasury to initiate extraordinary measures to prevent a government shutdown. Among these measures is the adjustment of the Treasury General Account (TGA) held at the Fed, which typically eases liquidity conditions and encourages risk-taking in the economy.
During the press conference, Powell may be questioned about this situation and could strive to avoid appearing dovish, as TGA spending could introduce liquidity into the system and cap potential gains in risk assets for the near term.
Rent Inflation
Recent indicators suggest a potential easing of shelter inflation, which significantly impacts the overall consumer price index (CPI). According to analysis from the Wall Street Journal’s Chief Economic Correspondent Nick Timaros, the Labor Department’s “all tenant rent” index has shown a deceleration, rising only 3.2% over the four quarters leading to Q4, compared to 3.9% in Q3 and 5.5% a year ago. This figure closely aligns with the 3.1% average recorded between 2017 and 2019.
If Powell acknowledges disinflationary trends in shelter inflation, risk assets may experience a substantial upward movement, reflecting renewed investor confidence and recalibrated market expectations.
As the industry awaits the Fed’s insights and Powell’s responses to these pivotal questions, market participants should prepare for potential volatility in response to the meeting’s outcomes.
