Bitcoin Traders Eye Fed Rate Decision Amid Trump’s Policies

Bitcoin (BTC) traders are closely watching the Federal Reserve’s rate decision on Thursday, but it’s Fed Chair Jerome Powell’s commentary that could sway markets more than the expected 25 basis-point rate cut. With President-elect Donald Trump’s plans for fiscal expansion, tax cuts, and import tariffs, traders are keen to assess the Fed’s outlook on inflation and its impact on future rate cuts.

Background: Fed’s Rate Cuts and Market Reactions

The Fed initiated a rate-cutting cycle in September, with a 50 basis-point cut signaling a more favorable stance toward risk assets like cryptocurrencies. Markets have already priced in Thursday’s quarter-point rate cut, followed by another in December, according to Fed funds futures. The current Fed funds rate of 4.75% to 5% is above the neutral range, suggesting ample room for the Fed to continue cutting rates, especially as the labor market shows signs of cooling.

Market Anticipates Rate Cut But Eyes Powell’s Commentary

The CME’s FedWatch tool shows a near-100% probability of a rate reduction to the 4.5%-4.7% range. While this cut is anticipated, the real market impact could come from Powell’s response to Trump’s policies. With control over the Senate and possibly the House, Trump’s agenda for fiscal expansion and high tariffs could raise inflation, complicating the Fed’s plans for normalization. Any hint from Powell about inflation risks related to Trump’s economic policies may lead traders to reassess future rate cuts, impacting Bitcoin and other assets.

Bitcoin at Record Highs Amid Hopes for Regulatory Shift

Bitcoin recently surged to record highs above $75,000, fueled by optimism for pro-crypto regulatory policies under a Trump administration. However, Bitcoin could face volatility if Powell hints that Trump’s policies may force the Fed to keep rates high. If Powell refrains from commenting directly on Trump’s policies, focusing instead on a data-dependent approach, BTC could maintain its upward momentum.

Fed’s Cautious Approach to Rate Normalization

Having previously underestimated inflation in 2021, the Fed may now proceed cautiously. Bank of America’s research team noted on Tuesday that policymakers could consider pausing rate cuts if Trump announces significant tariff hikes. “Further fiscal expansion means a higher terminal fed funds rate,” the bank noted, underscoring that the Fed might opt for caution to avoid an inflationary spiral driven by Trump’s economic agenda.

As Thursday’s Fed rate decision looms, traders will be watching closely, not just for the cut itself, but for Powell’s insights into how Trump’s policies may affect the path of inflation and interest rates.