Fed Signals Rate Cut Freeze While Bitcoin Struggles to Hold Ground After Powell's Cautious Remarks

Bitcoin’s recent rally faced headwinds as U.S. Federal Reserve Chair Jerome Powell signaled a potential pause in the interest rate cut cycle during the latest FOMC press conference. The flagship cryptocurrency, which had climbed to $94,000, subsequently retreated as market participants reassessed their expectations for monetary policy.

Powell’s Policy Pivot: What “Neutral Range” Really Means

Powell’s key message centered on the Fed’s current positioning relative to neutral policy rates. According to his remarks, the policy adjustments implemented since September have positioned the central bank “within a range of plausible estimates of neutral.” This technical assessment essentially translates to a holding pattern—the Fed is now prepared to let economic data drive future decisions rather than continue the cutting trajectory from 2025.

The implications are significant for rate expectations. Market participants have significantly downgraded their bets on further cuts, with only 24% of traders now pricing in a 25 basis point reduction at the January meeting. The remaining 76% anticipate the Fed will maintain rates at their current level. Powell emphasized that while labor market risks have intensified and inflation remains “somewhat elevated,” the prospect of rate hikes is off the table—for now.

Inflation Persistence and the Tariff Wild Card

A substantial portion of current inflationary pressures stems from trade tariffs, Powell noted, characterizing them as more likely to trigger a one-time price adjustment rather than persistent inflation. Should the administration refrain from implementing additional tariffs, inflation could crest as soon as Q1 2026.

This timeline carries particular weight as the Fed prepares to digest critical inflation data. The PPI inflation report scheduled for January 14 and the CPI reading due January 13 will function as crucial decision points for the FOMC’s January assessment. These releases will essentially determine whether the pause becomes more permanent or merely a brief pause before resuming cuts.

Market Recalibration and Bitcoin’s Pullback

The cryptocurrency sector absorbed Powell’s cautious tone swiftly. Bitcoin declined from its $94,000 peak to approximately $92,000 in the aftermath of his comments, reflecting a pattern that has emerged throughout 2025—FOMC communications and Powell’s measured guidance tend to trigger profit-taking and volatility in digital assets. The move suggests traders are factoring in a longer-than-expected holding period for Fed rates.

The Trump Factor: Will Policy Direction Shift?

An intriguing variable remains unresolved: Powell’s tenure concludes in May, and a Trump administration would likely install a successor with a more accommodative stance. Kevin Hassett, considered a leading candidate for the position, has previously noted substantial scope exists for additional rate reductions. Meanwhile, Bloomberg’s Chief Economist Anna Wong maintains that fundamentals—weak employment growth and subdued inflation momentum—could still justify up to 100 basis points of cuts through 2026, potentially overriding near-term signals.

The divergence between Powell’s cautious present and potential future policy under new leadership creates uncertainty that markets will need to navigate carefully in the months ahead.