Fed Expected to Hold Rates Steady as Markets Watch Powell’s Take on Key Economic Issues

The Federal Reserve is widely expected to keep interest rates unchanged on Wednesday while reinforcing its hawkish stance from December. Market participants, including those in the crypto sector, will be closely monitoring Chairman Jerome Powell’s comments on key topics such as mass deportations and shelter inflation.

The rate decision is set for release at 19:00 UTC, followed by Powell’s press conference at 19:30 UTC.

Since September, the Fed has reduced rates by a total of 100 basis points, with the current target range standing at 4.25% to 4.5%. Although the December meeting resulted in a 25 basis point rate cut, the forward guidance suggested a more gradual approach to easing in 2025. This cautious outlook led to declines in risk assets, including Bitcoin (BTC).

Despite this, Wednesday’s meeting is widely considered a non-event for the markets, as policymakers are expected to hold rates steady and maintain the hawkish tone from December.

Market Expectations and Policy Uncertainty

“We don’t expect this week’s FOMC meeting to have a significant impact on markets, as the decision to keep rates unchanged was well telegraphed back in December,” Danske Bank noted in a client report on Tuesday.

The report also highlighted that while Fed officials have already factored in some potential economic effects of President Donald Trump’s policies, Powell is unlikely to provide strong guidance due to ongoing uncertainty.

However, Powell may address several pressing issues that could sway market sentiment, including:

1. Impact of Mass Deportations on the Economy

President Trump has begun fulfilling his campaign pledge to remove illegal immigrants, with deportation flights ramping up over the weekend. Estimates suggest that total deportations could range from 1 million to 10 million.

Economists believe that large-scale deportations could tighten the labor market and fuel inflationary pressures. If Powell acknowledges this risk, it could dampen expectations for rate cuts and put downward pressure on risk assets.

“The loss of up to 1 million workers from the U.S. labor force would be significant. With the labor market already showing signs of tightening and unemployment near full-employment levels, this could further strain the jobs market,” said Benjamin Picton, Senior Macro Strategist at Rabobank, in a recent client note.

He added, “This is inherently inflationary, even before considering the additional effects of tax cuts and tariffs.”

2. The U.S. Debt Ceiling and Liquidity Conditions

The U.S. reached its $36 trillion debt ceiling last week, prompting the Treasury to implement extraordinary measures to keep government operations running. One of these measures involves drawing down the Treasury General Account (TGA) at the Fed.

Spending from the TGA typically increases liquidity in the financial system, encouraging risk-taking. However, this could counteract the Fed’s ongoing quantitative tightening (QT) efforts, which are aimed at reducing excess liquidity.

Powell may be questioned on this issue and is likely to avoid sounding overly dovish, as TGA-driven liquidity injections could provide temporary support to risk assets.

3. Shelter Inflation and Its Impact on Future Rate Cuts

Leading indicators suggest that shelter inflation, a key component of the Consumer Price Index (CPI), is cooling.

“The Labor Department’s ‘all tenant rent’ index, which leads shelter inflation in CPI, slowed significantly last quarter. It rose just 3.2% over the past year, compared to 3.9% in Q3 and 5.5% a year ago,” Wall Street Journal Chief Economic Correspondent Nick Timaros wrote on X last week.

If Powell acknowledges this disinflationary trend, it could strengthen the case for future rate cuts, potentially boosting risk assets like stocks and cryptocurrencies.

Market Implications

While Wednesday’s rate decision is expected to be uneventful, Powell’s remarks could provide critical insights into the Fed’s outlook on inflation, labor markets, and liquidity conditions. Any unexpected shifts in tone could spark volatility across traditional and crypto markets alike.