This week's Fed rate decision: What it means for Bitcoin and the US dollar

Today, Wall Street is awaiting the interest rate decision that could determine the future of crypto and traditional markets in the coming months. The U.S. Federal Reserve will hold its official interest rate statement on Wednesday, and while the rate is almost certain to remain unchanged, the real tension lies in what Chair Jerome Powell will say between the lines.

The investment world is waiting for a signal: will the Fed cut rates later this year, or will it keep its foot on the brake? This news could have a huge impact on bitcoin, which is currently around $88.05K with a daily loss of 0.93%.

The interest rate decision: Likely no change, but lots of guessing

After three consecutive rate cuts of 0.25 percent each, the market expects the Fed to leave rates unchanged on Wednesday at the current level of 3.5% to 3.75%. According to CME’s FedWatch index, the probability of this is over 96 percent.

This aligns with what Powell indicated in December: the voting committee will likely postpone further rate cuts until 2026. Neel Kashkari, President of the Federal Reserve Bank of Minneapolis who has voting rights this year, reinforced this cautious stance recently by stating that it is “far too early” to cut rates again.

So technically, the rate decision itself seems unlikely to surprise. But this is only half the story.

Will Powell sound dovish or hawkish?

The crucial moment will come during Powell’s press conference afterward. The question investors are truly waiting for: does he indicate that the current pause in rate cuts is permanent, or does he signal that early easing is still on the table?

A hawkish approach would involve Powell emphasizing persistent inflation risks. This would temper expectations for future rate cuts and put pressure on risky assets like bitcoin. Conversely, a dovish stance would suggest that this week’s pause is temporary and that new cuts are likely to resume in the coming months. This scenario would probably give bitcoin a boost.

Morgan Stanley favors a dovish scenario. The analysts expect the Fed to use the same wording in its policy statement: “considering the scope and timing for further adjustments.” This cautiously indicates that easing remains possible.

On the other hand, JPMorgan has a much more limited expectation: no rate cuts this year, followed by a rate hike in the next period. Most analysts position themselves somewhere in the middle, expecting one to two cuts through 2026.

An important detail: Stephen Miran, Trump’s appointee at the Fed, is expected to vote against this pause and advocate for an aggressive 50 basis point cut. If the number of dissenters grows, it would reinforce the dovish narrative and could boost stocks and bitcoin.

Trump’s housing, Powell’s own problems

Powell’s press event brings even more political pressure. He will inevitably face questions on three sensitive topics.

First, Trump’s affordability measures: The president announced that he instructed his advisors to purchase USD 200 billion worth of mortgage-backed securities. He also imposed a ban on large institutional investors buying single-family homes that families could otherwise occupy. According to Allianz Investment Management, these measures could increase demand and drive up home prices, which could be inflationary in the short term.

This puts Powell in a tricky position. Agreeing with Trump’s plans as “moderately inflationary” could exacerbate market volatility. Conversely, opposing them could provoke political backlash.

Second: Threats to Fed independence: Observers suggest Trump views Powell as a target. The Department of Justice is currently conducting an investigation directly related to Powell—something some see as political revenge because the chair has not cut rates quickly enough to Trump’s liking.

Third: Turbulence in bond markets: Recent volatility stemming from Japanese fiscal fears raises doubts about interest rate stability. Powell will likely try to downplay these concerns.

Impact on the dollar and bitcoin

According to ING analysts, Powell’s explanation of the current situation could actually strengthen the US dollar. If Powell emphasizes that financial conditions remain restrictive, it would not encourage rate cuts. This could cause the dollar to appreciate against currencies with lower interest rates—such as the yen and euro.

For bitcoin, which is priced in dollars, a stronger dollar would create headwinds. ING states that the next major shift in the dollar is more likely to come from poor economic data rather than Fed commentary.

On the other hand, if Powell sounds dovish and hints at cuts later this year, bitcoin could benefit from this stimulative expectation. The current level of $88.05K will thus be highly dependent on how Powell explains his rate decision.

This interest rate meeting sits at the intersection of macroeconomic policy, political tension, and crypto markets. Today, it partly determines the direction that investors and bitcoin holders will take in 2026.