The Federal Reserve is set to announce its interest rate decision, and almost no one expects it to cut rates.
However, traders will be paying close attention to Chairman Jerome Powell’s post-meeting press conference, which may hold the real intrigue.
His take on what to expect in the coming months and on recent hot topics, including President Donald Trump’s affordability policies and threats to Fed independence, could move both traditional and crypto markets.
Let’s dig into what’s priced in and how Powell’s comments could move markets.
Status quo on rates
After delivering three back-to-back quarter-point cuts, the central bank is expected to stand pat on Wednesday. As of Friday, CME’s FedWatch futures were pricing in a 96% chance the Fed will hold steady at 3.5%-3.75%.
This is consistent with the message Powell delivered in December, saying the bank’s voting committee will hold off on further cuts into 2026. Furthermore, Minneapolis Fed President Neel Kashkari, who has a Federal Open Market Committee vote this year, recently told The New York Times that he believes it is “far too soon” to cut rates again.
So unless the Fed pulls off an unexpected rate cut, which could prop up the dollar while boosting bitcoin and stocks, the decision itself looks set to be a non-event.
Hawkish or dove-like pause?
The primary question for traders, however, will be whether the impending pause in rate cuts signals a hawkish or dovish stance.
A hawkish pause scenario involves Powell flagging persistent inflation risks, denting rate cut bets and pushing risk assets down. A dovish scenario would mean that Wednesday’s pause is temporary and rate cuts will resume in the coming months, potentially lifting bitcoin.
Morgan Stanley expects the Fed to send a dovish signal by maintaining the policy statement’s wording “given the scope and timing of further adjustments to the target range,” signaling that easing remains on the table. The statement is expected to acknowledge the robustness of the economy, while preserving the possibilities for future interest rate cuts.
Watch for dissenters from the Fed’s rate break as they could reinforce a dovish tilt. Trump’s appointee, Stephen Miran, is expected to dissent in favor of a bold 50 basis point cut. If the number of dissenters grows, it will strengthen the case for future easing, boosting stocks and bitcoin.
Right now, most observers, except JPMorgan, expect the Fed to cut interest rates once or twice during the rest of the year. JPMorgan sees no rate change this year, followed by a hike next year.
Status quo and affordable measures
Powell is likely to face questions about the rationale for keeping interest rates steady, as well as the potential impact of Trump’s affordability measures and related issues on key macroeconomic variables.
According to ING, Powell’s explanation of the status quo rate decision could lift the US dollar and potentially weaken greenback-dominated assets like bitcoin.
“Given recent developments in both US asset markets and activity, he will struggle to make the case that financial conditions are restrictive and need to be loosened. This could pour cold water on the notion of another Fed rate cut, and this would lift the dollar against low-yielders such as the yen and euro,” ING analysts said.
“Instead, the next macro leg lower in the dollar will likely have to come out of bad data rather than Fed talk,” they added.
Powell’s potential nod to Trump’s efforts to get affordable housing, which is inherently inflationary in the short term, could amplify market volatility.
Trump recently said he has directed his representatives to buy $200 billion in mortgage bonds, arguing that will push down interest rates and monthly payments. He also issued an executive order directing large institutional investors to refrain from buying single-family homes that families could otherwise buy.
Observers say these measures could accelerate demand and increase housing inflation.
“The purchase [of] USD 200 billion of mortgage-backed securities risks driving demand forward, increasing prices and skewing the benefits towards the established companies. On the other hand, the impact of prohibiting large institutional investors from buying single-family homes is likely to be limited, given small institutional ownership relative to the total stock,” Allianz Investment Management said in a note.
Note that Trump’s tariffs are already baked in with a lagged inflationary effect expected this year as higher import costs filter through to the final consumer.
Finally, Powell may face questions about the DOJ investigation targeting him personally, which he calls political revenge for not cutting interest rates fast enough to suit Trump, and about recent volatility in the bond market stemming from Japan’s fiscal issues. He can evade scrutiny while downplaying fears in the bond market.
