Expectations for a rate cut in March have risen to as much as 23% after President Donald Trump nominated Kevin Warsh to be Federal Reserve Chairman. He selected Warsh in January to replace Jerome Powell, whose term ends in May. But investors remain concerned about his hawkish reputation.
The probability that the market expects a rate cut at the Federal Open Market Committee meeting in March has risen to about 23%, up from about 18.4% a few days earlier, according to data from the Chicago Mercantile Exchange (CME) Group. Traders are pricing in a 25 basis point (bp) rate cut, a sign of growing speculation that the next Fed chair may move toward easing monetary policy.
The shift reflects growing speculation among traders that an upcoming change in Fed leadership could lead to a shift toward accommodative monetary policy, despite warnings from the Fed's own policymakers. Traders' bets on a March rate cut are notable because they suggest the market is pricing in a move long before the Federal Open Market Committee signals a formal policy change.
Perfumo says Warsh's appointment sends mixed macroeconomic messages to investors and markets
Current CME data show 23% of investors are betting on a rate cut in March. Earlier, cryptocurrency analyst Nick Parkin said, “The nomination of Kevin Warsh as the next Fed chairman has shaken the market to its core.''
Packlin said precious metals prices fell in late January and early February as the market reacted to Warsh's reputation for favoring long, high interest rates. He argued that investors are adopting Warsh's outlook on Fed policy, particularly his criticism of the central bank's oversized balance sheet.
He also noted that investors could face more liquidity constraints if the Fed under Warsh pursues balance sheet reductions.
Thomas Perfumo, global economist at cryptocurrency exchange Kraken, also said Warsh’s appointment sends a divided macroeconomic message to the market. He argued that following Warsh's appointment, the crypto market may need to adapt to U.S. liquidity and credit remaining stable rather than rising.
So far, Polymarket’s crypto traders have look There is a 27% chance that the Fed will cut interest rates twice this year. A further 26% are betting on three rate cuts this year, while only 13% see a fourth rate cut possible.
ProCap's Park says BTC's biggest rally could occur if the asset continues to rise despite high Fed rates.
Crypto asset prices often follow liquidity trends, rising as interest rates fall and falling as rising interest rates reduce funding options. One crypto analyst said the next big boost for Bitcoin could materialize if the market reconsiders the idea that falling interest rates are the only bullish factor.
“I think we should expect that even more accommodative policy may not actually trigger a bull market, and we have to accept that reality and that possibility,” said Jeff Park, chief investment officer at ProCap Financial.
Lowering interest rates is seen as one way for the Fed to stimulate the economy, and Bitcoin enthusiasts believe these policies create better conditions for riskier assets. While rising interest rates are known to have a negative impact on Bitcoin, Park suggests that if Bitcoin continues to rise amid rising Fed rates, it could lead to the asset's next big rally, and potentially the ultimate rally, which he calls a “Bitcoin positive low.”
“This is the mythical, elusive, perfect holy grail of what Bitcoin really is. When interest rates rise, Bitcoin rises, which is very contrary to the theory of quantitative easing,” he said. Nevertheless, he argued that if that were to happen, the risk-free rate would be undermined, meaning traditional methods for pricing the yield curve could no longer be used. But he also noted that the current monetary system is flawed and that the Fed and Treasury are not working together as effectively as they should to guide national securities.
