Bitcoin Looks to Fed as Market Awaits End of Quantitative Tightening

The potential winding down of quantitative tightening (QT) could provide a tailwind for Bitcoin (BTC) and other risk assets, though gains may be tempered by economic uncertainty and inflation risks.

As Bitcoin attempts to recover from recent losses, investors are watching closely for Wednesday’s Federal Reserve (Fed) policy announcement. Many expect that a signal regarding the conclusion of QT could serve as a catalyst for financial markets.

The Fed will release its rate decision at 18:00 UTC, followed by a press conference from Chairman Jerome Powell.

While the central bank is widely expected to keep rates steady in the 4.25%-4.50% range, market participants will scrutinize any updates on QT. Policymakers must consider liquidity management as the Treasury continues to grapple with debt ceiling concerns. Additionally, the Fed’s summary of economic projections (SEP) will provide insight into future monetary policy.

Since June 2022, the Fed has been systematically shrinking its $9 trillion balance sheet, which had ballooned during the COVID-era stimulus measures. The QT program has been a significant factor in tightening financial conditions, reversing the excess liquidity that fueled Bitcoin’s 2020-21 bull run. However, January’s Fed meeting minutes revealed discussions about slowing or pausing balance sheet reductions, increasing the likelihood that Powell may address this in today’s statement.

Noelle Acheson, author of Crypto Is Macro Now, commented on the situation: “Powell hinted last year that QT could end in 2025. If he reiterates that in today’s press conference, it would signal a policy shift, suggesting the Fed may step back in as a liquidity provider should conditions require it.”

While full-scale quantitative easing (QE) is not expected anytime soon, Acheson noted that an early QT conclusion would inject fresh liquidity into markets as the Fed reinvests maturing assets. She also pointed out that this move could stabilize the Treasury market, which faces $9 trillion in debt maturities this year.

Lauren Goodwin, an economist at New York Life Investments, echoed this perspective, arguing that an earlier-than-expected end to QT could be interpreted as a dovish signal that markets have been waiting for.

On decentralized betting platform Polymarket, traders assign a 100% probability that QT will end before May. The bet will resolve as “Yes” if the Fed expands its securities holdings by the end of April.

Bank of America Expects Fed to Halt QT

Major investment banks, including Bank of America (BofA), expect the Fed to soon pause QT, citing economic uncertainty, particularly surrounding President Donald Trump’s trade policies.

“Our rates strategists believe the Fed will signal a QT pause until the debt ceiling issue is resolved, as suggested in January’s meeting minutes. They do not anticipate a resumption of QT afterward, with an official confirmation expected later this year,” BofA wrote in a March 14 client note.

A halt to QT could place downward pressure on U.S. Treasury yields, lowering borrowing costs and making riskier assets like Bitcoin more attractive to investors.

Stagflation Risks Could Curb Gains

Trump’s tariffs have added to inflationary pressures while also threatening economic growth, raising concerns about stagflation. If the Fed’s economic projections reflect this reality, it could delay anticipated rate cuts, limiting Bitcoin’s potential upside from a QT pause.

Acheson warned that stagflationary signals—such as reduced GDP forecasts and higher core PCE inflation estimates—could appear in the Fed’s SEP, which may unsettle investors.

“If the Fed acknowledges a stagflationary shift, markets could react negatively. Some of these risks are already priced in, but confirmation that rate cuts will be further delayed could surprise those betting on immediate liquidity relief,” Acheson noted.

Recent U.S. retail sales data and regional manufacturing indices have indicated economic weakness, while inflation indicators have been rising, likely reflecting the impact of Trump’s trade policies.

Summing up the outlook, Bank of America stated: “Current economic data and policy actions suggest the Fed will revise its growth outlook downward while adjusting inflation projections upward—signaling a subtle but notable acknowledgment of stagflation risks.”

Despite these challenges, BofA still expects the Fed’s dot plot to reflect two rate cuts in 2025 and 2026, highlighting the complexity of the current policy environment.