Zinger Key Points
- The Fed's concern is less about tariffs themselves and more about their implementation and whether they are short-term or long-term.
- While the market is focused on short-term rate changes, the Fed is now looking at the larger macroeconomic and political picture.
As the Federal Reserve gears up for its next policy decision, the key question weighing down crypto markets remains whether Chair Jerome Powell put an end to quantitative tightening.
What Crypto Investors Expect
According to a poll by crypto analyst Benjamin Cowen, 42% of respondents expect quantitative tightening (QT) to conclude, while 58% expect it to continue.
Crypto investors are paying close attention, given Bitcoin's historical sensitivity to monetary policy shifts.
With the Fed having already cut interest rates by 100 basis points across three meetings, the debate now turns to whether further rate cuts or an end to QT is on the horizon.
Cowen himself sees potential for Bitcoin’s dominance rally to continue, further weighing on altcoin weakness.
A potential selloff, coinciding with an end to the Fed’s QT, could spark the long-awaited relief for an altcoin rally later in the year before macroeconomic data deteriorates.
The Fed’s Uncertain Macro Outloook
Beyond crypto, broader macroeconomic forces are shaping the Fed's outlook, according to The Wall Street Journal.
Inflation has cooled unevenly since the Fed first cut rates in September, but concerns remain over whether the disinflation trend will hold.
Meanwhile, the labor market has stayed resilient, pushing fears of an imminent slowdown further into the background.
The real wildcard? Tariffs.
With President Trump reportedly considering new import duties on Canada and Mexico, the Fed must weigh how price increases could impact inflation expectations.
If businesses anticipate higher costs, they may raise prices preemptively, feeding into inflationary pressures.
The last time Trump escalated a trade war in 2019, the Fed responded with rate cuts, fearing a slowdown in business investment.
Also Read: Czech Central Bank Considering 5% Bitcoin Reserve
But this time, the backdrop is different: Inflation is still elevated, and the Fed may not be as quick to ease policy.
A major shift has taken place in how the Fed approaches inflation.
Previously, businesses were hesitant to raise prices, fearing they would lose customers.
But after years of high inflation, that hesitation is gone—companies are now more comfortable passing costs onto consumers.
This is why the Fed closely tracks inflation expectations—if households anticipate higher prices, they might buy goods sooner, reinforcing inflationary trends.
Data from the University of Michigan's latest consumer survey already shows more Americans citing inflation concerns when making purchasing decisions.
Despite these pressures, the Fed is unlikely to react to tariffs preemptively—officials typically wait to see real economic impacts before adjusting policy.
However, if new tariffs are rolled out in phases, rather than all at once, it may be harder for the Fed to determine their true impact on inflation.
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