As markets await the Federal Open Market Committee’s (FOMC) decision on January 29, crypto investors find themselves at a critical juncture. Following the first ever crypto executive order by US President Donald Trump and yesterday’s DeepSeek price crash, macroeconomics are once in the focus.
Crypto Market FOMC Preview
Crypto analyst Byzantine General (@ByzGeneral) has identified a consolidation range between $90,682 and $108,388 for Bitcoin. He anticipates limited movement prior to the FOMC meeting, citing three potential scenarios for how the market might respond once the Fed concludes its discussions: “Like I said in my thread yesterday, we’re really just consolidating between this range ($90,682 – $108,388). And I expect nothing material to happen until Wednesday FOMC. And then there are 3 possibilities with only 2 outcomes…FOMC surprise dovish -> break out of range, FOMC neutral -> chop in range for longer, FOMC hawkish -> chop in range for longer”
Crypto market participants often interpret a dovish stance—one that signals or enacts interest rate cuts or an extended pause—as supportive of risk-on assets, including Bitcoin and crypto. A surprise dovish tilt could be the catalyst for breaking the current trading range, according to Byzantine General. A neutral or hawkish outlook, on the other hand, might mean an extended period of sideway price movement.
In their assessment, banking giant ING laid out the broader macroeconomic context that could influence the Fed’s decision and projections for 2025. According to ING: “Federal Reserve set for an extended pause. After 100bp of rate cuts the Fed has signalled it needs evidence of economic weakness and more subdued inflation prints to justify further policy loosening. President Trump’s low tax, light-touch regulation policies should be good news for growth, while immigration controls and trade tariffs provide upside risk for prices, suggesting we could have a long wait for the next cut.”
The December FOMC saw a 25bp rate cut, but the subsequent commentary suggested a slower and more gradual path of easing for 2025, potentially totaling just 50bp for the year. ING points out that strong economic performance and persistent inflation pressures provide less incentive for the Fed to lower rates quickly. The bank also highlights a lingering possibility that the Fed may even adopt a more hawkish tone than it has publicly acknowledged so far:
“In fact, the risk is that the Fed is actually more hawkish than they indicated… However, with President Trump having just won re-election and his policy plans differing so starkly from President Joe Biden’s, Fed Chair Jay Powell acknowledged that some felt the need to incorporate the potential policy shifts into their December 2024 projections ahead of time. However, not all did and since his inauguration, there has been little sign of any moderation in Trump’s key policy thrust.”
ING’s economists further note that market participants largely expect no policy change on January 29, while the bank itself previously anticipated a March rate cut—an event it now sees as increasingly unlikely: “That means no change to monetary policy is a certainty on 29 January and it makes our previous call of a March rate cut look unlikely – currently just 6bp of a 25bp move is discounted by financial markets.”
However, ING still forecasts three rate cuts for 2025, hinging on a gradual cooling of the labor market and moderating wage pressures. They emphasize that rising Treasury yields, higher borrowing costs, and a stronger dollar could combine to tighten financial conditions, ultimately forcing the Fed’s hand later in the year: “Therefore we take the view that the Fed may need to push harder and cut rates a little further than currently priced by markets, but that is more likely to be a second half of 2025 development.”
On the balance sheet reduction (quantitative tightening, or QT), ING sees the Fed possibly ending QT in 2025 if excess liquidity shrinks to levels below what the central bank deems comfortable. The bank pegs $3 trillion in reserves as a critical threshold: “We are currently at US$3.5tn. So we’re comfortable. At the same time, the reverse repo balance is running at US$125bn, and if that were to hit zero, then we’d hit some degree of tightness. That’s close, as QT is running at US$60bn per month. QT may have to end by mid-2025 based on a simple extrapolation of this.”
Regarding currency markets, ING suggests that the dollar could retain its strength if the Fed remains cautious about easing: “December’s FOMC meeting certainly added support to the dollar bull run… it is hard to see the January FOMC event risk being read more dovishly… We doubt the Fed is ready to push back against those market expectations. This should keep dollar rate spreads relatively wide and argues that the FOMC will not be the reason the dollar corrects lower.”
With President Donald Trump starting his second term, questions about the Fed’s independence have resurfaced. Historically, Chair Jerome Powell has deflected suggestions of political influence: At the upcoming FOMC meeting, Powell can be expected to dodge questions about the Fed’s independence and the potential impact by Trump.
The President, however, has been explicit about his views on interest rates. When asked if he expected the Fed to listen to his demands for rate cuts, Trump responded: “I would make a strong statement.” After being asked if he expects the Fed to listen, he answered “Yeah.”
At press time, the total crypto market cap stood at $3.45 trillion.
Featured image from Shutterstock, chart from TradingView.com
