Will the Fed lend a hand to Bitcoin during the next FOMC?

Hypotheses are beginning to circulate that during 2025 the Fed might indirectly end up giving a hand to Bitcoin.

Although these are hypotheses based on indirect correlations, they are supported by genuine favorable market forecasts. In these cases, the markets are not always right, but there are even internal sources that hypothesize that such logic may occur.

The anticipated Fed rate cut could restart risk-on markets, including Bitcoin

The key issue of this reasoning is linked to the interest rates in the USA.

With the high inflation of 2022, the Fed had to raise rates to significant levels.

The peak was reached from July 2023 to August 2024, when they were even brought to 5.5%, a level even higher than that of the 2007 crisis, and which had not been seen since 2000.

Starting from September of last year, the Fed began to cut rates, but core inflation in the USA just in September 2024 stopped falling.

The Fed first brought the rates back to 4.5% in December, and then since then it has stopped cutting them.

In the meantime, however, core inflation has started to decrease again, so in theory the Fed could now also start cutting them again.

The inflation issue

Interest rates are raised precisely to curb inflation, because low rates encourage the granting of credit, which in turn favors consumption, increasing demand and prices.

So if inflation rises, central banks raise them, while they try to reduce them when inflation is low.

Currently, a core inflation of 2.8% is still considered slightly high, given that the USA’s target is categorically at 2%.

Although from January to March 2025 it decreased from 3.3% to 2.8%, and compared to March 2024 it decreased by a whole percentage point, there is still the risk of a rebound.

The problem is the tariffs. In fact, the tariffs imposed by Trump on goods entering the USA from abroad are a cost that will largely be passed on to consumers, and will therefore end up increasing prices.

What is still completely unknown, however, is the extent of this new increase in inflation, both in terms of values and timing.

Until now, no effect has been seen yet, but it is assumed that by June it should manifest. However, it is in no way quantifiable in terms of impact, even though the hypotheses circulating suggest a return above 3%, or perhaps even up to 4%.

Will the Fed cut rates? 

Currently, predicting how the Fed will react to all this is impossible, also because the American central bank actually has two objectives: keeping inflation at 2% and stimulating full employment.

At this moment unemployment in the USA is very low, so the Fed does not need to intervene in that regard, but it is possible that in the coming months it will rise, due to the Trump tariffs.

And so despite the risks of an increase in inflation, the markets are betting on several rate cuts during 2025.

It should be noted, however, that this kind of forecasts have often proven to be wrong in the past, especially in the medium/long term, while in the short term they tend to be correct.

The markets give well over an 80% probability that the Fed at the next FOMC meeting in May will not cut rates. This scenario, in light of such data, seems remarkably likely.

As for the month of giugno, things are already starting to get complicated.

In fact, although the higher probabilities are for a cut of 25 basis points, which is the minimum range, the probabilities are not minimal at all that the Fed might decide not to cut or to cut by 50 basis points.

The impact of the Fed’s decisions on the price of Bitcoin (BTC)

It is necessary to specify that the monetary policy of the Fed is not at all the only element that can affect the price of Bitcoin.

Indeed, often there is another factor that in the medium/long term tends to have greater importance, and it is the strength of the dollar expressed by the Dollar Index (DXY). However, the Fed’s monetary policy also impacts the dollar itself, so the two things are somehow connected.

Furthermore, it is not necessary to wait for the Fed to speak because its decisions impact the price of Bitcoin, since when there is little uncertainty the markets price them in advance, as already done for the decision in May.

Currently, there is still no significant certainty that the Fed will cut rates in June, so it is very likely that the markets are not already pricing in this possibility.

After the decision on May 7, however, the scenario should gradually become clearer, and it is possible that if the Fed were to decide to cut rates on June 18, the markets might start to price in the news positively well before.

Furthermore, the Dollar Index has fallen significantly since the beginning of the year, and this decline theoretically should eventually reflect positively on the price of Bitcoin.

The medium/long term

It should be noted, however, that until precisely June it is possible that the positive impact of all this on the price of Bitcoin may be limited to halting its decline, or at most generating an initial rebound.

After the Fed’s decision on June 18, however, when the markets begin to price in the possibility of further rate cuts, things could go differently, especially if the Dollar Index has remained low, or has even fallen further.

In other words, it is possible to imagine a scenario for a true recovery of the Bitcoin bull run, even though as of today it is very difficult to say how likely that is.

As of today, in fact, the most likely hypothesis seems to be that the Fed will end up lending a hand to Bitcoin by the end of the year, but from now to the coming months so many things can still change, and so quickly, that this hypothesis could also vanish at any moment.