As bitcoin (BTC) attempts to bounce back from its recent decline, market watchers are turning their attention to the Federal Reserve’s (Fed) interest rate decision scheduled for Wednesday. Some analysts are suggesting that an announcement to halt the balance sheet runoff program, also known as quantitative tightening, may be a boon for the market.
The Fed’s rate announcement is set for 18:00 UTC, with Chairman Jerome Powell’s press conference to follow at 18:30 UTC.
While the bank is not expected to surprise with a change in interest rates, maintaining the current range of 4.25% to 4.50%, the real focus will be on the future of the quantitative tightening program. This comes amid concerns that QT could impact liquidity as the Treasury navigates the ongoing debt ceiling challenges. Market participants will also closely monitor the summary of economic projections.
Since June 2022, the Fed has gradually been reducing its balance sheet, which ballooned to a staggering $9 trillion after the COVID crisis when the bank purchased trillions in assets, including bonds, to bolster the markets.
Minutes from the January Fed meeting indicated that policymakers discussed the possibility of pausing or slowing the reversal of the balance sheet expansion that had underpinned the crypto rally during 2020-21. Hence, a hint from Powell in today’s announcement cannot be dismissed.
“Late last year, Fed Chair Powell suggested that the end of QT might come in 2025. If he mentions it in Wednesday’s statement or during the press conference (as I expect someone will inquire), it would indicate we are entering a new monetary framework, ready for the Fed to potentially resume debt purchases if necessary,” commented Noelle Acheson, author of the Crypto Is Macro Now newsletter in Tuesday’s edition.
“While renewed QE [quantitative easing] is unlikely in the very near term, the influx of liquidity from a significant buyer (the Fed) returning to the market to replace maturing securities would be beneficial,” Acheson added, emphasizing that the conclusion of QT could help avoid liquidity challenges in the Treasury market, which faces $9 trillion in maturing debt this year.
Lauren Goodwin, an economist at New York Life Investments, echoed similar sentiments, suggesting that an earlier-than-expected conclusion to the balance sheet runoff could send a dovish signal desired by the market.
Traders on the decentralized betting platform Polymarket are placing a 100% probability that the Fed will conclude the QT program before May. This contract will resolve with a “Yes” if the central bank raises the amount of securities it holds on a week-over-week basis by the end of April.
Bank of America forecasts end of QT
Several investment firms, including Bank of America, anticipate that the Fed will announce the end of QT during a meeting marked by economic uncertainty largely due to President Donald Trump’s trade tariffs.
“Our rates strategists foresee the statement indicating that the Fed is pausing QT until the debt ceiling issue is fully addressed, as indicated in the January meeting minutes. Although they do not expect a restart of QT after resolving the debt ceiling, this announcement is likely to be made later this year,” Bank of America’s March 14 client note stated.
A pause in QT could lead to lower yields on the 10-year U.S. Treasury note, often seen as the risk-free rate, consequently boosting demand for riskier assets.
Be wary of stagflation signals
Trump’s tariffs have heightened inflation risks while also threatening economic growth, potentially creating a stagflation scenario. The Fed’s summary of economic projections (SEP) could reflect these concerns. A reference to stagflation could postpone additional rate cuts, thereby potentially restraining bitcoin’s gains from a QT pause announcement.
Acheson noted that the likelihood of a stagflationary adjustment in the SEP—highlighting lower GDP forecasts alongside increased core PCE estimates, with more policymakers acknowledging inflationary risks—is considerable.
“Should we see that stagflationary shift in the official projections, the market is likely to respond negatively. To some extent, these factors are already being factored in—but confirmation that the Fed might delay rate cuts further could alarm those reliant on liquidity boosts,” Acheson added.
Recent data on U.S. retail sales and regional manufacturing indices has revealed hints of economic weakness, while forward-looking inflation indicators have been climbing, likely influenced by Trump’s tariffs.
As Bank of America aptly summarized: “The confluence of signals from the latest data and policies in force should lead the Fed to downgrade growth projections while simultaneously upping inflation estimates this year, signaling a slight acknowledgment of stagflation.”
“The dot plot should still indicate two rate cuts in ’25 and ’26,” the investment bank concluded.
