As Bitcoin (BTC) aims to bounce back from its recent decline, analysts are keenly anticipating Wednesday’s Federal Reserve (Fed) rate decision, with some suggesting that an announcement to end the balance sheet runoff program, known as quantitative tightening, could provide a positive boost for the market.
The Fed is set to release its rate review at 18:00 UTC, followed by a press conference with Chairman Jerome Powell at 18:30 UTC.
No major surprises are expected regarding interest rates, which are likely to remain in the current range of 4.25% to 4.50%. Consequently, attention will focus on the Fed’s approach to the quantitative tightening program amid concerns about its potential impact on market liquidity, particularly as the Treasury deals with an ongoing debt ceiling dilemma. Additionally, the market will be closely watching the summary of economic projections.
Since June 2022, the Fed has been gradually reducing its balance sheet as part of the QT program, which had soared to a historic $9 trillion following COVID-19, when the Fed acquired trillions in assets, including bonds, to stabilize the markets.
The minutes from the January Fed meeting indicated that policymakers considered pausing or decelerating the reduction of the balance sheet, which played a vital role in the 2020-21 crypto bull market. Thus, the likelihood of Powell hinting at a similar approach today cannot be discounted.
Noelle Acheson, author of the Crypto Is Macro Now newsletter, noted that if Powell mentions the end of QT in his statement or during the press conference, it could signal a shift to a new monetary policy approach, with the Fed ready to resume further debt purchases if necessary.
Acheson suggested that while more quantitative easing isn’t imminent, the addition of liquidity from a large buyer like the Fed could benefit the market, particularly to prevent liquidity issues in the treasury market, which faces a staggering $9 trillion in debt maturities this year. Similarly, Lauren Goodwin from New York Life Investments expressed that an earlier conclusion to the balance sheet runoff could signal the dovish outlook the market seeks.
