Upcoming Federal Reserve Meeting: Key Insights
The first Federal Reserve (Fed) meeting of 2025 is set to wrap up on Wednesday, culminating in a rate decision announcement at 19:00 UTC. This will be followed by a press conference led by Chairman Jerome Powell at 19:30 UTC. Currently, the Fed’s target range for interest rates stands at 4.25% to 4.5%. This marks a significant decline of 100 basis points since September. During the December meeting, a 25 basis point rate cut was implemented, yet the accompanying press conference and forward-looking forecasts indicated a more gradual approach to future rate cuts throughout 2025, subsequently leading to a dip in risk assets, including bitcoin (BTC).
However, the upcoming meeting is largely anticipated to be a non-event for the markets, particularly in the cryptocurrency space, as it is widely expected that policymakers will maintain the current rates while upholding the hawkish guidance set forth in December. Analysts from Danske Bank stated in a note to clients on Tuesday, “We doubt this week’s FOMC meeting will be a major market mover, as the unchanged rate decision has been well communicated in advance since December. The minutes revealed that participants have already formed preliminary assumptions regarding Trump’s policies, but due to the considerable uncertainty, we doubt Powell will provide any strong guidance to the markets.”
Despite the anticipated stability, Powell is likely to face inquiries regarding several critical issues, and his responses could influence market dynamics.
Key Issues to Watch
Deportation of Illegal Immigrants
President Donald Trump is actively pursuing his campaign promise to deport illegal immigrants from the United States, with deportation flights already initiated over the weekend. Estimates suggest that the total number of deportations could range from one million to ten million individuals. Analysts predict that these substantial deportations could enhance labor market strength and contribute to inflationary pressures. Should Powell express a similar viewpoint, it could dampen expectations for further rate cuts, potentially leading to a decline in risk assets. As noted by Rabobank’s Senior Macro Strategist, “The disappearance of up to 1 million potential workers from the U.S. labor force would be significant. Given the strength of the December payrolls report, a tightening in the U.S. labor supply would add further pressure to a jobs market already showing signs of tightening, with an unemployment rate near full-employment levels.”
U.S. Debt Ceiling
The United States recently reached its self-imposed debt ceiling of $36 trillion, prompting the Treasury to implement extraordinary measures to maintain government operations. One such measure involves depleting the government’s checking account at the Fed, known as the Treasury General Account (TGA). This TGA spending typically enhances liquidity in the economy and markets, encouraging risk-taking behavior. This could counterbalance the effects of the Fed’s ongoing quantitative tightening, or balance sheet normalization process. Powell may receive questions regarding this situation and will likely aim to avoid a dovish tone, especially as TGA spending adds liquidity to the system, thus potentially capping any upside for risk assets in the near term.
Rent Inflation
Leading indicators suggest a potential moderation in shelter inflation, which significantly impacts the consumer price index (CPI). According to Wall Street Journal’s Chief Economic Correspondent, Nick Timaros, “The Labor Department’s ‘all tenant rent’ index, which is a precursor to shelter inflation in the CPI, increased at a notably slower rate last quarter. It rose by 3.2% over the four quarters ending in Q4, compared to 3.9% in Q3 and 5.5% a year ago. This figure is very close to the 3.1% average observed between 2017 and 2019.” If Powell acknowledges this disinflationary trend in the shelter inflation indicators, it could catalyze a surge in risk assets.
