Powell's Pause: What the Fed Chair's Stance Means for Bitcoin and the Dollar This Week

When the Federal Reserve announces its rate decision this Wednesday, most market participants won’t be surprised if Powell and the committee keep borrowing costs unchanged. The real intrigue, however, lies in how Powell frames this decision—and what his language suggests about the path ahead for both traditional and digital assets.

The stakes for traders are high. Beyond the official rate announcement, Powell’s post-meeting remarks could determine whether risk assets like bitcoin continue climbing or face headwinds from a stronger dollar. For investors navigating this uncertain environment, understanding the nuances of Powell’s communication is crucial.

The Market Is Pricing In a Rate Hold

As of late January, futures markets indicate a 96% probability that the Federal Reserve will maintain its benchmark interest rate in the 3.5%-3.75% range on Wednesday. This aligns closely with Powell’s December guidance, when the Fed chair signaled that additional cuts would likely be postponed until 2026 arrives. Minneapolis Fed President Neel Kashkari reinforced this dovish-on-hold stance, telling reporters that cutting rates again would be “way too soon.”

Unless Powell springs a surprise rate cut—which would send shockwaves through currency markets and likely boost bitcoin alongside equity valuations—the decision itself has already been priced into markets. The outcome feels pre-determined. What traders should really focus on is Powell’s explanation for the pause.

Powell’s Language Could Signal Different Paths Forward

The distinction between a “hawkish pause” and a “dovish pause” will matter enormously for risk assets. In a hawkish scenario, Powell emphasizes persistent inflation concerns, which dampens expectations for future easing and weighs on bitcoin and stocks. In a dovish scenario, Powell hints that the rate-hold is merely temporary and rate cuts could return within months, potentially supporting bitcoin’s recovery.

Major investment firms are divided on what to expect. Morgan Stanley anticipates that Powell will retain language in the policy statement indicating the Fed is “considering the range and timing for further adjustments to the target range”—a signal that rate cuts remain possible. JPMorgan, by contrast, expects no additional rate reductions this year and envisions a hike coming in 2027. Most other observers are penciling in one or two rate cuts before year-end.

Watch for dissents, especially from Powell’s colleagues. Trump appointee Stephen Miran is expected to push for a bold 50-basis-point cut. If dissenters multiply, it strengthens the case for easing, which would likely lift both equities and bitcoin as investors rotate back into risk assets.

What Powell Says on Inflation and Trump’s Policies Matters Most

Powell will face pointed questions about President Trump’s recent initiatives—particularly his plan to purchase $200 billion in mortgage-backed securities and his executive order restricting large institutional investors from buying single-family homes. Powell’s characterization of these measures could swing market sentiment sharply.

If Powell signals these policies are inflationary in the near term, market volatility could spike. The $200 billion in mortgage purchases could “pull forward demand, inflating prices,” according to Allianz Investment Management analysts. Conversely, the impact of the institutional investor restrictions appears limited given that large investors control a small slice of the single-family home market.

Meanwhile, Trump’s tariff agenda introduces another layer of inflation risk, with delayed effects expected to filter through consumer prices in 2026. ING analysts note that Powell’s explanation of the rate hold could paradoxically lift the dollar. If Powell struggles to argue that financial conditions are restrictive and need loosening—given robust asset market performance and economic activity—traders may interpret this as less dovish than hoped. A stronger dollar, in turn, weighs on bitcoin and other greenback-denominated assets.

Why Investors Should Watch Powell’s Response to Political Pressure

Beyond economics, Powell will likely face questions about recent political pressures, including the DOJ investigation targeting him personally. The Fed chair has characterized these efforts as political retaliation for not cutting rates fast enough to satisfy Trump. Powell’s response—or his decision to deflect—could send signals about Fed independence and credibility.

Recent bond market volatility stemming from Japan’s fiscal position may also come up, potentially forcing Powell to either reassure markets or acknowledge legitimate concerns. How Powell handles these sensitive topics will reveal the Fed’s willingness to act independently versus its vulnerability to political pressure.

The Bottom Line for Bitcoin and Beyond

The bottom line: the rate decision Wednesday is likely a non-event, but Powell’s tone, word choices, and responses to tough questions could reshape market expectations for 2026. For bitcoin traders, the focus should be on whether Powell sounds dovish enough to keep rate-cut hopes alive—or hawkish enough to prop up the dollar at bitcoin’s expense. Investors should prepare for volatility in the 24 hours surrounding Powell’s remarks.