Will Bitcoin be influenced by Wednesday’s interest rate decision?

Wednesday, May 7, 2025, the Fed will decide whether to cut interest rates or leave them unchanged: even though the markets are already largely convinced that it will not cut them, the price of Bitcoin might still react.

In fact, if the lack of a cut is almost certain, there is still a lot of uncertainty about the possible subsequent cuts.

The interest rate cuts

The relative peak of the last few years for interest rates in the USA was reached in July 2023, when the Fed raised them to 5.5%. This was the highest level in the last 22 years.

Until August 2024, he left them so high, but in September he started to cut them.

Up to today there have been three cuts, for a total of 100 basis points. Now these rates are at 4.5%.

This is still a very high level, so much so that since 2008 it has only been surpassed with the increases of 2023.

The same USA President Donald Trump has repeatedly called loudly for the Fed to cut them, also because in January, February, and March they have not been cut anymore (the last cut dates back to December), but the situation on the inflation side does not yet allow for the assumption that the American central bank is already ready to resume the cuts.

The key issue now is the number of cuts from June until the end of the year.

The forecasts

Assuming that there is no cut on Wednesday, the financial markets are nevertheless betting that from June to December there could be another three or four cuts of 25 basis points.

However, if until a few weeks ago they considered a first cut likely as early as June, now instead they have become more conservative, considering a first cut more likely only in July.

The problem is inflation.

In fact, the Fed in 2022/2023 was forced to raise rates to keep under control an inflation that skyrocketed to levels not seen since the ’80s of the last century, and during 2024 the reduction was not sufficient to induce it to continue with rate cuts even in the first part of 2025.

The data that the Fed uses as a reference point is the so-called PCE Core, which after skyrocketing above 5.6% in 2022, had fallen to 2.6% in 2024, meaning still above the 2% target.

Furthermore, in February 2025 it had risen to 3%, even though in March it returned to 2.6%.

The problem is that the new politica commerciale estera di Trump based on dazi will produce inevitable increases in the prices of goods imported from abroad, and such impact on inflation has not yet been detected.

The Fed therefore, while waiting for new data, will hardly feel confident betting on a future further decline in inflation, given that instead an increase is more likely.

The impact of interest rate cuts on Bitcoin

The key point on Wednesday will not be so much the news, now expected, of the lack of rate cuts, but the future scenario that will be described by the Fed, and in particular by its chairman Jerome Powell during the traditional press conference.

In fact, although the markets have convinced themselves that by the end of the year the Fed should still cut rates three or four times, the president might instead appear much more cautious, and this would not please the markets at all.

In fact, since the markets have now bet on possible cuts, if the sentiment were to shift in a more pessimistic direction, many positions will certainly be modified in a short time.

A potential repositioning like this could once again scare the markets, ultimately leading to capital shifts from risk-on assets, such as Bitcoin, to risk-off ones, such as gold.

On the other hand, something like this has already happened from February to April, also precisely because of the fact that in light of the tariffs unpredictably so high introduced by Trump, many positions have been modified with shifts from bull assets to bear assets.

The USA economy

Having said that, the macroeconomic data from Friday, however, described a U.S. economy still in excellent condition, with +177,000 non-farm payrolls compared to the +133,000 expected.

The unemployment rate remained stable at 4.2%, but despite the strength of the data, many continue to consider a recession in the USA likely during 2025.

The bettors on Polymarket continue to consider a recession more likely than not, so much so that the markets on Friday responded with cautious optimism to the excellent data on the labor market.

The fact is that the data are still clearly resilient, despite the dark future, and hopes are continuing to grow for a potential thaw in trade tensions. In fact, the USA stock markets recorded an excellent rebound in the second half of April, after a strong and rapid plunge following the announcement of “reciprocal” tariffs at the beginning of the month.

Bitcoin (BTC) Price Analysis

Regarding the price of BTC, the bottom of the recent correction seems to be behind us, although in the short term uncertainty and doubts about its trend remain.

However, if the situation regarding tariffs were to improve, as expected, and especially if the sentiment were to shift back towards risk-on, with a significant drop in the price of gold, part of this uncertainty could dissipate, even suddenly, and make room for greater optimism, especially concerning the rest of 2025.

It should not be forgotten that every time presidential elections in the USA have been held since Bitcoin has existed (2009), the following year a speculative bubble inflated on the price of BTC, while the subsequent year entered a bear-market lasting about 12 months.