Crypto Awaits Fed Rate Cut Decision Amid Recession Fears

Crypto markets went on a rollercoaster ride this week as investors reacted to President Trump’s latest tariff announcement – a 10% fee on all imports. Bitcoin (BTC), Ether (ETH), Solana (SOL), and XRP surged ahead of the speech, only to tumble soon after as global markets took a hit. The sudden swings wiped out earlier gains, leaving traders scrambling to make sense of what’s next.

But just as quickly as prices dropped, they started to recover. By Friday morning, BTC held firm above $83,100, ETH climbed back to $1,800, and XRP, SOL, and ADA each gained more than 2%.

What’s going on?

Big Crypto Transfers Signal Investor Uncertainty

Before Trump’s speech, investors moved large amounts of BTC, ETH, and XRP into exchanges, a sign they were preparing to sell. Bitcoin transfers spiked to 2,500 BTC in a single block just hours after the announcement. Coinbase saw more Bitcoin deposits, especially from large holders. ETH inflows hit 80,000 per hour, while XRP transfers to Binance soared to 130 million in just one hour – far higher than the previous day’s 10 million.

This rush to sell reflected growing economic uncertainty. Traders cashed out to secure profits, causing temporary drops in BTC and ETH demand.

Markets Now Eye Economic Data and Rate Cuts

With the tariff reaction settling, traders are shifting focus to upcoming economic data and expected interest rate cuts. Many hope this could help Bitcoin recover. Fresh data due later today might give the markets a boost.

“Investors are watching closely for signs of weakness in the U.S. job market,” QCP Capital shared in a Friday update. “If the data is weaker than expected, it could lead to more Fed rate cuts this year to support the slowing economy.”

Markets currently expect four rate cuts in 2025 – each by 0.25 basis points in June, July, September, and December. Lower rates encourage borrowing and spending, which can boost the economy. Futures data now suggests a 70% chance of a Fed rate cut in June, up from 60% before Trump’s tariff announcement.

Will the Fed Cut Rates? Morgan Stanley Says No

Despite market expectations, Morgan Stanley predicts the Fed won’t cut rates this year. The firm believes Trump’s tariffs could push inflation higher, making rate cuts less likely. Earlier, Morgan Stanley had forecasted a 25 basis point cut in June but has since changed its outlook.

Many Fed officials also prefer to keep rates steady for now to see how Trump’s policies impact the economy. Some are still cautious about inflation and unsure whether current price changes will last.

Fed Vice Chair Philip Jefferson said that there’s “no need to rush” into changing rates. He added that if inflation stays high, the Fed may keep rates at 4.25%-4.5% for longer. However, if inflation drops or the job market weakens, the Fed could reconsider.

Can Bitcoin Benefit from Rate Cuts?

Bitcoin and the broader crypto market have historically performed well when interest rates drop. Lower rates make traditional investments like bonds less attractive, while a weaker dollar strengthens BTC as a hedge against inflation.

QCP Capital expects more volatility but sees a potential short-term Bitcoin bounce as risk assets recover from oversold conditions.

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Meanwhile, Luke Tilley, chief economist at Wilmington Trust, warned that Trump’s tariffs could push the U.S. closer to a recession. He raised the probability of a downturn to 50%, saying the economy could slow within three months if tariffs stay in place. The biggest risk, he noted, is the uncertainty affecting businesses and consumers.

Investors will get more insight into the Fed’s plans later today when Fed Chair Jerome Powell speaks after the March jobs report. Last month, Powell said he expects any inflation from Trump’s tariffs to be temporary, echoing the White House’s stance.

One thing’s certain – between politics, inflation, and market swings, crypto traders won’t be getting much sleep anytime soon.