The Federal Reserve is gathering for what’s shaping up to be the most important meeting of 2025 — one that could, potentially, pave the way for interest rates to be slashed for the first time this year.
Any move to reduce the cost of borrowing will have huge ramifications for the stock market and by extension Bitcoin, with investors beginning to chase higher returns as cash in savings accounts grows at a slower pace.
But BTC accelerating to the moon may not be guaranteed — at least straightaway. According to the CME FedWatch tool, there’s now a 96% chance that the base rate will drop by 0.25 percentage points this week. Because of this, you could argue the decision has been priced into the market already.
Image: CME FedWatch tool
What could prove more significant is the news conference that chairman Jerome Powell will give after the Federal Open Markets Committee’s meeting concludes. His remarks — along with answers to questions from journalists — may offer precious clues about what will lie ahead for the rest of the year.
While some believe that the U.S. central bank should go much further, much faster — and opt for a 0.5 percentage point cut in one go — many analysts believe this is exceedingly unlikely. But no matter what happens, you can guarantee that there’s one person who will be unhappy: Donald Trump.
The U.S. president, who will actually be in the U.K. for his second state visit when the announcement emerges, has long been a fierce critic of the Fed’s reluctance to cut rates, and reduce the interest paid on government borrowing in the process. He’s taken to referring to its chairman as “Too Late” Jerome Powell, has called for his resignation, and has expressed exasperation given how the Bank of England and the European Central Bank have enforced multiple cuts so far in 2025.
Where Things Stand
On Monday, it’s fair to say that Wall Street was in pretty bullish shape, with major indices including the S&P 500 hitting intraday record highs. This might not just be down to interest rates though, with Elon Musk’s decision to buy Tesla shares worth $1 billion also creating a buzz on trading floors.
Meanwhile, Bitcoin has been trending higher after weeks of sideways action. It’ll be significant if the world’s biggest cryptocurrency manages to race past the current 30-day peak of $118,595.78, as this could set the stage for bulls to mount a bid for BTC to set a new all-time high beyond $124,457.12.
A resurgence could also prove significant for Ether, which has experienced something of a healthy pullback after setting its own record of $4,953.73 on Aug. 24. Signs that monetary policy is loosening could prove enough for the No. 2 digital asset to crack $5,000 for the first time.
As ever though, there’s a big but coming. Some economists are beginning to sound the alarm that the stock market is incredibly overheated — and a substantial pullback is looking overdue. The S&P 500 has accelerated by a jaw-dropping 72% since the start of 2023. Robust earnings are a factor here, along with undiminished enthusiasm for artificial intelligence.
The growth of major digital assets over the same timeframe is even more astronomical. BTC rallied by 600% in this two-and-a-half-year period, with ETH up 275% and XRP surging more than 780%. If analysts are worried that stock market indices are due a pullback, what does that mean for the crypto sector?
Indeed, some market watchers at major U.S. investment banks are even questioning whether it’s wise to cut interest rates at all right now. JPMorgan’s David Kelly points to how inflation remains well above the Fed’s 2% target — in part exacerbated by Donald Trump’s tariffs. He fears any move to slash the cost of borrowing could appear to be politically motivated, and stocks, bonds as well as the dollar could end up taking a hit if that’s the case. In a research note, he wrote:
“By the fourth quarter of this year, inflation could be 1.2 percentage points above the Fed’s target and rising, while unemployment would be just 0.3 percentage points above their target and stable. If this is the outlook, why should the Fed cut at all?”
As ever, take any concrete predictions about what lies ahead for stocks and cryptocurrencies with a massive pinch of salt.
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