TLDR
- Federal Reserve expected to maintain current interest rate range (4.25% to 4.50%) with focus shifting to potential end of quantitative tightening (QT)
- Bank of America and other analysts predict Fed will pause QT until debt ceiling issues resolve
- End of QT could provide liquidity support for risk assets including Bitcoin
- Stagflationary concerns may emerge from Trump’s tariff policies affecting growth and inflation projections
- Market currently pricing in 1-2 rate cuts for 2025, but Fed may signal fewer cuts due to inflation concerns
The cryptocurrency market is looking toward today’s Federal Reserve meeting for direction. Bitcoin has been under pressure recently. Traders are watching for signs that the central bank might end its quantitative tightening program.
The Federal Reserve will announce its latest policy decision at 18:00 UTC on March 19. This will be followed by Chairman Jerome Powell’s press conference 30 minutes later.
The Fed is widely expected to keep interest rates unchanged in the current range of 4.25% to 4.50%. This has been widely telegraphed to markets in recent weeks.
QT Program
Instead of rate changes, market participants are focused on the future of the Fed’s quantitative tightening program. The QT program has been reducing the size of the Fed’s balance sheet since June 2022.
Since the COVID pandemic, the Fed’s balance sheet had grown to a record $9 trillion. This expansion of the money supply helped fuel the crypto bull market of 2020-21.
The January Fed meeting minutes revealed discussions about possibly pausing or slowing the balance sheet reduction. Several investors believe Powell might hint at ending QT during today’s announcement.
“Late last year, Fed Chair Powell hinted that the end of QT was coming in 2025,” noted Noelle Acheson, author of the Crypto Is Macro Now newsletter. She added that such a move would signal “a new monetary regime.”
Bank of America analysts expect the Fed to announce a pause in QT until debt ceiling issues are resolved. Their March 14 client note stated they “do not expect to restart after the debt ceiling is addressed.”
Traders on Polymarket, a decentralized betting platform, currently show 100% odds that the Fed will end QT before May. This indicates strong market consensus around the timing.
An end to QT could put downward pressure on Treasury yields. Lower yields on the 10-year Treasury note might increase demand for riskier assets like Bitcoin.
However, any positive impact might be limited by concerns about stagflation. President Trump’s tariff policies have increased inflation risks while potentially slowing economic growth.
The Fed’s Summary of Economic Projections (SEP) will be closely watched for signs of stagflationary adjustments. This could include lower GDP forecasts combined with higher inflation estimates.
Recent U.S. economic data has shown some weakness in retail sales and manufacturing. At the same time, forward-looking inflation metrics have been rising, possibly reflecting the impact of tariffs.
Bank of America expects “the Fed downgrading growth and upgrading inflation this year, a small nod to stagflation.” They still predict the Fed’s dot plot will show two interest rate cuts in both 2025 and 2026.
Fed Chair Powell has emphasized patience in recent communications. In a speech to economists in New York earlier this month, he stated “there is no need to be in a hurry” as the central bank seeks “greater clarity” on the Trump administration’s policies.
Market pricing currently indicates no rate cut until at least June. Traders expect one additional quarter-point reduction and about a 50-50 chance of a third cut by year-end.
Some analysts believe even these modest expectations may be too optimistic. Thierry Wizman from Macquarie wrote: “Markets appear to have gotten too dovish on the Fed.”
The Fed might also address its management of the $6.4 trillion portfolio of Treasurys and mortgage-backed securities. Recent meetings have included discussions about the best approach to handle these assets.
For Bitcoin investors watching today’s announcement, the end of QT could provide a tailwind. But any optimism might be tempered by the Fed’s updated economic projections.
