Bitcoin Eyes Fed’s Decision as Bank of America Predicts End of Quantitative Tightening
The anticipated conclusion of quantitative tightening (QT) could provide a boost for Bitcoin (BTC) and other risk assets, though gains may be tempered by stagflationary concerns reflected in economic forecasts.
As Bitcoin attempts to recover from its recent slump, market participants are closely watching Wednesday’s Federal Reserve (Fed) rate decision, with expectations that an announcement regarding the end of the balance sheet reduction program could serve as a bullish signal.
The Fed is set to release its rate decision at 18:00 UTC, followed by Chairman Jerome Powell’s press conference 30 minutes later.
While the Fed is expected to maintain its current interest rate range of 4.25% to 4.50%, investors will be keenly focused on any signals regarding the future of quantitative tightening. Policymakers face the challenge of balancing liquidity conditions while the Treasury contends with debt ceiling constraints. Additionally, markets will analyze the Fed’s summary of economic projections (SEP) for any notable shifts in outlook.
Since June 2022, the Fed has been steadily reducing its balance sheet, which had swelled to $9 trillion following the COVID-era stimulus measures. The QT program reversed a portion of the liquidity that had fueled the crypto bull market of 2020-21. However, meeting minutes from January indicated that policymakers were considering slowing or pausing the reduction process, making it possible that Powell could hint at such a shift during today’s announcement.
Noelle Acheson, author of the Crypto Is Macro Now newsletter, highlighted this potential shift, stating, “Late last year, Fed Chair Powell suggested that QT would end in 2025. If he reiterates this in Wednesday’s press conference, it would confirm a transition to a new monetary phase where the Fed could intervene with additional debt purchases if necessary.”
While full-scale quantitative easing (QE) remains unlikely in the near term, Acheson noted that the return of the Fed as a major liquidity provider through reinvestment of maturing securities would benefit markets. She also emphasized that an early end to QT could prevent liquidity strains in the Treasury market, which faces $9 trillion in debt maturities this year.
Lauren Goodwin, an economist at New York Life Investments, echoed this sentiment, suggesting that an earlier-than-expected end to QT could serve as a dovish signal for financial markets.
Over on decentralized prediction platform Polymarket, traders have fully priced in the expectation that QT will end before May, with bets resolving as “Yes” if the Fed increases its securities holdings by the end of April.
Bank of America Predicts QT’s End
Several major investment banks, including Bank of America (BofA), foresee the Fed halting QT amid an uncertain economic outlook, largely influenced by the impact of President Donald Trump’s trade tariffs.
“Our rates strategists anticipate that the Fed will announce a QT pause until the debt ceiling issue is resolved, as indicated in the January meeting minutes. However, they do not expect QT to resume afterward, with an official announcement likely coming later this year,” BofA stated in a March 14 client note.
A pause in QT could exert downward pressure on the yield of the 10-year U.S. Treasury note, a benchmark risk-free rate, potentially boosting demand for riskier assets like Bitcoin.
Stagflation Concerns Loom
Trump’s trade tariffs have fueled inflation while simultaneously threatening economic growth, raising concerns about stagflation. If the Fed’s economic projections reflect this reality, it could delay rate cuts, dampening Bitcoin’s potential gains from a QT pause.
Acheson warned that the likelihood of stagflationary adjustments—such as lower GDP growth projections and higher core PCE inflation estimates—remains high. She cautioned that confirmation of such a shift could unsettle markets, particularly for those expecting imminent liquidity injections.
Recent U.S. retail sales data and regional manufacturing indices have hinted at economic fragility, while forward-looking inflation indicators are rising, possibly in response to the new tariff policies.
Summarizing the situation, Bank of America noted: “The latest data and policy measures suggest that the Fed will lower its growth outlook while raising its inflation forecast, marking a small but significant nod to stagflation.”
Despite these concerns, the investment bank still expects the Fed’s dot plot to signal two rate cuts in 2025 and 2026, underscoring the delicate balancing act policymakers must navigate in the months ahead.
