As the US Federal Reserve prepares to adjust interest rates on Wednesday, broader reforms at the central bank could have a serious impact on the crypto market.
The Fed is expected to cut interest rates tomorrow. In a move that has traditionally signaled gatherings in the crypto market, lower yields of assets like bonds means higher risky assets like crypto are more attractive.
The expected interest rate cuts come amid a political battle and a new appointment to the Federal Reserve. US President Donald Trump’s administration has accused federal government Gov. Lisa Cook of asking her to remove her with mortgage fraud. Meanwhile, the Senate confirmed with the board of directors Stephen Milan, the White House economic adviser.
Efforts to nominate individuals with accusations against Cook and their ties to the administration could mean an independent Federal Reserve system that plays a key role in setting crypto policy.
What does the political federal reserve mean for crypto policy?
The Trump administration is trying to remove Cook (a Biden-era appointee) as it aims to provide more control over the Federal Reserve. On August 25, the White House X page accused Trump of posting a letter of firing Cook, accusing him of making false statements about one or more mortgage agreements.
Cook denied the charges and refused to resign. Her legal team said the charges are motivated by politics and the White House is “hurried to invent a new justification for that review.” The chef himself said it was “unprecedented illegal.”
On Monday, a Washington Court of Appeals blocked the White House from removing Cook from her position in the Federal Reserve. This allows her to maintain the post while the incident is pending.
This morning, economist and chairman of the Council of Economic Advisors, Milan, who has previously made pro-cryptic comments, has been confirmed by the Senate.
His position is temporary and his term ends in January 2026 – but Milan refused to promise to resign as White House adviser if his term is extended beyond January 31st.
This has led Democrats to worry that the Fed and its monetary policy agenda will be seen more in Trump’s political goals.
Related: Trump updates push to the Fed cooks who were banished ahead of expected rate cuts
Aaron Brogan, founder of the crypto-centric law firm Brogan Law, told Cointelegraph:
“The impact is unlikely to decrease in the less independent Fed, but policy may be. I think it will change more and affect the general whim.”
The politicized Fed is a relatively unknown territory. When asked what the non-independent Fed means for our monetary policy, Brogan said, “No one knows.”
“There is an assumption that dependents have a more freer monetary policy. It’s pure speculation because they’ve never seen it because it’s more sensitive to whimsical public opinion. In this administration, at least Trump will cut interest rates.”
Crypto markets are ready to cut interest rates for the Federal Reserve
As Washington lawmakers fight over the fate of the central bank, the crypto market is preparing for the Federal Reserve meeting tomorrow.
“The market is dominant,” Kevin Rush, founder of RAAC, the real-world asset (RWA) borrowing and lending ecosystem, told Cointelgraf.
“When we resume the cutting cycle, we’ll unlock the $7.2 trillion sitting in a money market fund and we’re tied up with outstanding mortgage debt.”
He predicted that liquidity would flow into alternative yield investments like Decentralized Finance (DEFI) and RWAS.
Coinmarketcap research leader Alice Liu told Cointelegraph that “high beta tier 1S” like Ether (ETH) and Solana (SOL) are particularly affected by changes in Fed interest rates.
“These trades are more sensitive to liquidity and risk appetite than growth technology – BTC. In particular, investors can consider deploying additional capital in the growth of ETH’s ‘digital oil’ narrative or SOL’s adoption, as interest rate reductions can cause additional capital to be injected into risk-on assets,” she said.
She said that defi tokens are “relatively attractive” when interest rates fall, boosting tokens tied to lending/DEX activities. “Bitcoin is “still a quality code” and is not sensitive to interest rates to changes in interest rates, but it could move “over the big policy surprises and liquidity turns.”
Kobeissi’s letter stated, “When the Fed is cut to a maximum of 2% for every time, the S&P 500 normally loves it.” The immediate results were mixed, but “In the 20 of the last 20 times that this happened, the S&P 500 ended a year later.”
They are hoping for the same result this time. “There will be more immediate volatility, but long-term asset owners will become parties.”
“Gold and Bitcoin know this. The direct high price action we saw in these asset classes is the pricing going forward. Gold and Bitcoin are just low prices to an already hot background that push your assets up high. It’s the perfect time to own long-term assets.”
The political battle for the Fed is yet to be decided, but regardless of who is pulling the lever, low interest rates are a welcome sight for traders.
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