Crypto markets: watch out for Fed rates

Today, Wednesday, September 17, 2025, the Fed will announce its monetary policy decision on interest rates.

It seems almost certain that the American central bank will opt for a 25 basis point cut, so much so that the markets have already largely priced in this decision. 

In reality, however, today there could still be volatility, because if the rate cut is priced in, the future prospects are quite another matter and still appear uncertain.

The Fed’s Rate Cut

The last rate cut by the Fed was in December of last year, when they cut them by exactly 25 basis points.

Note that previously, from February 2022 to July 2023, they had increased them by as much as 525 basis points, and starting from September of last year, they have only cut them by 100 points. Then they halted the cuts. 

The problem is that the level of inflation is still too high, as the annual core inflation between June and July of this year rose from 2.8% to 3.1%.

The Fed’s inflation target is 2%, so the current core of 3.1% is quite distant. Additionally, the tariffs introduced by Trump are likely to have driven inflation up in recent months, and they could continue to push it higher for a while longer.

Therefore, in theory, the Fed should not cut rates this time either, but the American central bank also has a second target, in addition to the 2% inflation goal, which is full employment. 

The US labor market has contracted in recent months, with the unemployment rate rising from 4.1% in June to 4.3% in August. 

It is precisely due to the difficulties in the US labor market that the Fed will be forced to cut rates, even though this worsens the situation from an inflation standpoint. 

The consequences on the crypto market

The crypto markets, just like traditional ones, have already widely priced in a 25 basis point cut today. 

What they do not know yet is whether the Fed will continue to cut in the coming months. 

Currently, the markets anticipate a 70% probability that by the end of the year rates will be cut by a total of 75 basis points, and it is on this percentage that they will likely base their decisions today. 

Today the Fed will not only announce its decision on rates, but will also release a press statement with some forecasts for the future. Additionally, President Powell will hold his usual press conference afterwards.

If based on the words of the Fed and Powell, the markets were to increase the probabilities of a total of 75 basis points of cuts by the end of the year, or even start to seriously consider cuts of 100 points, they should react well. If instead these probabilities were to decrease, they should react poorly. 

The Role of the Dollar

To better understand these dynamics, it is necessary to also discuss the Dollar Index. 

In fact, when the Fed’s interest rates are high, the interest paid on US government bonds is also high. This keeps the demand for Treasuries high, which, however, must be purchased in dollars. Therefore, when the demand for purchasing Treasuries rises, the demand for dollars also rises from foreign buyers, and consequently, the Dollar Index also rises. 

Conversely, when interest rates fall, the selling pressure on Treasuries increases, and consequently also that on dollars, by foreign investors. 

It is therefore not a coincidence that the Dollar Index has recently dropped from about 97.7 points to 96.8, precisely because the markets have already priced in a rate cut of 25 basis points. 

If they were to price in an increase in the likelihood of further cuts from now until the end of the year, the Dollar Index could fall further. 

Note that the Dollar Index is still within an ascending channel that started in 2007, but currently has its lower line around 96 points. Therefore, there is the possibility that in the coming days or weeks, it may break a trend that has lasted for almost 18 years, and this could have significant consequences on the markets. 

The Role of Bitcoin

The point is that the price trend of Bitcoin tends to be inversely correlated with the Dollar Index in the medium term. 

This means that if the markets start pricing in an increased probability of further Fed rate cuts, the Dollar Index could fall, and Bitcoin could rise. 

Obviously, however, if the market goes in the opposite direction, Bitcoin could decline. At present, no one can really know in which direction things will go from this perspective.