Battered BTC Market Looks to Federal Reserve for Support, BofA Predicts End of QT

As bitcoin (BTC) seems to be to recuperate from its current downturn, observers are wanting to Wednesday’s Federal Reserve (Fed) price choice to provide assist, with some saying that an announcement to finish the steadiness sheet runoff program, generally known as quantitative tightening, may very well be optimistic information for the market.

The Fed will announce its price overview at 18:00 UTC, adopted by Chairman Jerome Powell’s press convention half an hour later.

The financial institution is unlikely to provide any surprises on the rate of interest entrance, retaining the current vary of 4.25% to 4.50%. Therefore, the main target shall be on how policymakers plan to proceed with the quantitative tightening program, given the considerations that it may have an effect on liquidity within the system whereas the Treasury grapples with the continued debt ceiling difficulty. Plus, the abstract of financial projections shall be watched out by markets.

Since June 2022, the Fed, beneath the QT program, has been slowly shrinking its steadiness sheet, which had zoomed to a report of $9 trillion submit COVID when the financial institution purchased trillions of {dollars} price of property, together with bonds, to assist markets.

The minutes of the January Fed assembly confirmed policymakers mentioned pausing or slowing the reversal of the steadiness sheet growth that greased the crypto bull market of 2020-21. So, the chance of Powell hinting the identical later at the moment can’t be dominated out.

“Late last year, Fed Chair Powell hinted that the end of QT was coming in 2025. If he mentions it in tomorrow’s [Wednesday’s] statement or press conference (I imagine someone will ask him), that would end up signalling that we’re in a new monetary regime, and that the Fed stands ready to resume additional debt purchases should QE become necessary again,” Noelle Acheson, creator of the Crypto Is Macro Now publication stated in Tuesday’s version.

“While renewed QE [quantitive easing] unlikely any time soon, the additional liquidity from a large buyer (the Fed) coming back into the market to replace maturing holdings would be good news,” Acheson added, noting that the tip of QT can be a well timed transfer to keep away from liquidity glitches within the Treasury market that faces $9 trillion in debt maturity this yr.

New York Life Investments’ Economist Lauren Goodwin voiced the same opinion, saying a barely earlier finish to the steadiness sheet runoff may present the market with a dovish sign it’s wanting for.

Traders over decentralized betting platform Polymarket see a 100% likelihood that the Fed will finish the QT program earlier than May. The betting on the identical will resolve in “Yes” if the central financial institution will increase the quantity of securities it holds outright week-over-week by the tip of April.

Bank of America predicts finish of QT

Several funding banks, together with Bank of America, count on the Fed to finish QT in a gathering characterised by unsure financial outlook primarily stemming from President Donald Trump’s commerce tariffs.

“Our rates strategists expect the statement to indicate that the Fed is pausing QT until the debt ceiling is resolved, as suggested in the January meeting minutes. They do not expect to restart after the debt ceiling is addressed, but the announcement won’t be made until later this year,” Bank of America’s March 14 consumer notice stated.

A pause in QT may put downward strain on the yield on the 10-year U.S. Treasury notice, the so-called risk-free price, galvanizing demand for riskier property.

Watch out for stagflation hints

Trump’s tariffs have revved up inflation dangers whereas posing dangers to financial progress, a stagflationary scenario, and the Fed’s abstract of financial projections (SEP) may mirror that. A nod to stagflation may imply a delay in additional price cuts, probably limiting bitcoin positive factors from a QT pause announcement.

According to Acheson, possibilities of a stagflationary adjustment within the SEP – decrease GDP projections and better core PCE estimates, with extra policymakers citing upside dangers to inflation – are excessive.

“If, indeed, we get that stagflationary shift in official projections, the market is unlikely to be happy. To some extent, these are starting to be priced in – but confirmation that the Fed is likely to push rate cuts even further out could startle those counting on liquidity injections,” Acheson stated.

The just lately launched U.S. retail gross sales and regional manufacturing indices revealed indicators of financial weak spot, Meanwhile, forward-looking inflation metrics have been rising, doubtless adjusting to Trump’s tariffs.

Bank of America put it finest: “The combination of signal from the latest data and policies enacted to date should result in the Fed downgrading growth and upgrading inflation this year, a small nod to stagflation.”

“The dot plot should still show two cuts in ’25 and ’26,” the funding financial institution added.