Critical Takeaways to Track During the Fed’s ‘No Change’ Decision

The Federal Reserve is widely expected to keep interest rates unchanged in its upcoming meeting on Wednesday, maintaining its hawkish stance from December. Investors in bitcoin (BTC) and other risk assets will closely analyze Federal Reserve Chairman Jerome Powell’s commentary, particularly on 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. The Fed’s current target range for interest rates is 4.25% to 4.5%, following a cumulative 100-basis-point cut since September. While a 25-basis-point reduction was implemented in December, the accompanying forward guidance signaled a more measured approach to rate cuts in 2025, leading to a decline in risk assets, including BTC.

Despite the anticipation surrounding the event, most analysts view Wednesday’s meeting as a non-event for financial markets. Policymakers are expected to hold rates steady and reinforce the cautious outlook established in December.

“We don’t expect this week’s FOMC meeting to be a major market mover since the rate decision was well communicated in advance,” Danske Bank wrote in a note to clients on Tuesday. “While meeting minutes indicate some preliminary assumptions on Trump’s policies, Powell is unlikely to provide firm guidance given the prevailing uncertainties.”

However, Powell’s responses to key issues could still influence market sentiment.

Impact of Mass Deportations

President Donald Trump has begun fulfilling his campaign promise to deport illegal immigrants, with flights resuming over the weekend. Estimates suggest deportations could range from one million to ten million individuals.

Economists predict that large-scale deportations may tighten labor market conditions and contribute to inflationary pressures. If Powell echoes this sentiment, market expectations for aggressive rate cuts may fade, potentially dampening risk asset prices.

“The removal of up to a million workers from the U.S. labor force would be significant,” noted Rabobank’s Senior Macro Strategist Benjamin Picton in a client report earlier this month. “Given the strength of December’s payroll data, further contraction in labor supply could strain an already tight jobs market, where unemployment hovers near full employment levels.”

He added, “Such developments would be inflationary even before factoring in tax cuts and tariffs.”

U.S. Debt Ceiling Concerns

The United States recently hit its self-imposed $36 trillion debt ceiling, prompting the Treasury Department to initiate extraordinary measures to sustain government operations. One such measure involves drawing down the Treasury General Account (TGA), a federal checking account at the Fed.

Typically, TGA spending increases liquidity in the economy and financial markets, encouraging risk-taking behavior. This could partially offset the liquidity-draining effects of the Fed’s ongoing quantitative tightening (QT) program.

Powell is likely to be questioned on this dynamic, and his response could impact market expectations. If he downplays the impact of TGA spending, it may keep risk assets in check.

Trends in Rent Inflation

Indicators suggest a slowing trend in shelter inflation, which holds significant weight in the consumer price index (CPI).

“The Labor Department’s ‘all tenant rent’ index, a leading indicator of shelter inflation, showed a deceleration last quarter,” noted Wall Street Journal Chief Economic Correspondent Nick Timaros in a recent X post. “It increased just 3.2% over the last four quarters, compared to 3.9% in Q3 and 5.5% a year ago. That’s approaching the 3.1% pre-pandemic average seen between 2017-2019.”

If Powell acknowledges this disinflationary trend, risk assets, including bitcoin, could see renewed bullish momentum.