As the US Federal Reserve prepares to adjust interest rates on Wednesday, a broader shake-up at the central bank could have serious implications for crypto markets.
The Fed is expected to cut interest rates tomorrow, in a move that traditionally signals a rally in crypto markets: Lower yields on assets like bonds mean riskier assets like crypto are more attractive.
The expected rate cuts come amid a political battle and a new appointment to the Federal Reserve. US President Donald Trump’s administration has charged Fed governor Lisa Cook with mortgage fraud as it seeks her removal. Meanwhile, the Senate has confirmed White House economic adviser Stephen Miran to the board of governors.
The charges against Cook and the effort to nominate an individual with ties to the administration could mean a less independent Federal Reserve, which plays an important role in setting crypto policy.
What a political Federal Reserve means for crypto policy
The Trump administration is seeking to remove Cook — a Biden-era appointee — as it aims to exert more control over the Federal Reserve. On Aug. 25, the White House X page posted a letter in which Trump fired Cook, accusing her of making false statements on one or more mortgage agreements.
Cook denied the accusations and refused to step down. Her legal team said the charges were motivated by politics and that the White House is “scrambling to invent new justifications for its overreach.” Cook herself said that it is “unprecedented and illegal.”
On Monday, the appeals court in Washington blocked the White House from removing Cook from her position at the Federal Reserve. This will allow her to maintain her post while the case is pending.
This morning, Miran, an economist and chairman of the Council of Economic Advisors, who has also made some pro-crypto comments in the past, was confirmed by the Senate.
His position is temporary — the term ends in January 2026 — but Miran has declined to commit to stepping down as a White House adviser should his term extend beyond Jan. 31.
This has Democratic legislators worried that the Fed and its monetary policy agenda will be more beholden to Trump’s political goals.
Related: Trump renews push to oust Fed’s Cook ahead of expected rate cut
Aaron Brogan, founder of crypto-focused law firm Brogan Law, told Cointelegraph, “The Fed has great authority over banks, and ultimately, banks are quasi-regulators of the crypto industry by determining who can and cannot access financial services.”
“That influence is unlikely to decrease with a less independent Fed, but the policy might. I would wager it would be more changeable and susceptible to public whims.”
A politicized Fed is relatively uncharted territory. When asked what a less independent Fed means for US monetary policy, Brogan said, “Nobody knows.”
“There is an assumption that a dependent Fed would have more liberal, profligate monetary policy simply because it is more responsive to public opinion, which is fickle. But since we haven’t seen it, it is pure speculation. In this administration, at least, Trump would cut rates.”
Crypto market gets ready for Federal Reserve rate cut
As lawmakers in Washington fight over the fate of the central bank, crypto markets are getting ready for the Fed’s meeting tomorrow, where it’s expected that they will cut rates.
Kevin Rusher, founder of real-world asset (RWA) borrowing and lending ecosystem RAAC, told Cointelegraph that “markets are on edge.”
“Resuming the cutting cycle begins to unlock the $7.2 trillion sitting in money market funds, as well as the trillions tied up in outstanding mortgage debt.”
He predicted that liquidity would flow into alternative yield-generating investments like those in decentralized finance (DeFi) and RWAs.
Alice Liu, research lead at CoinMarketCap, told Cointelegraph that “high-beta layer 1s” like Ether (ETH) and Solana (SOL) are particularly affected by Fed interest rate changes.
“These trade like growth tech — more sensitive to liquidity and risk appetite than BTC. Especially as interest rate cuts could potentially trigger additional capital injected in risk-on assets, investors could be looking at deploying additional capital into ETH’s ‘digital oil’ narrative or SOL’s adoption growth,” she said.
She said that DeFi tokens are “relatively more attractive” when interest rates fall, boosting tokens tied to lending/DEX activity.” Bitcoin is “still the quality crypto” and less rate-sensitive to interest rate changes but can still move “around big policy surprises and liquidity turns.”
The Kobeissi Letter wrote, “When the Fed cuts rates within 2% of all time highs, the S&P 500 typically loves it.” While immediate-term results were mixed, “in 20 of the last 20 times this has happened, the S&P 500 has ended higher 1 year later.”
They expect the same outcome this time as well. “There will be more immediate-term volatility, but long-term asset owners will party.”
“Gold and Bitcoin have known this. The straight-line higher price action we have seen in these asset classes is pricing-in what’s coming. Gold and Bitcoin know lower rates into an already HOT backdrop will only push assets higher. It’s a great time to own long-term assets.”
The political fight for the Fed is still undecided, but regardless of who is pulling the levers, low interest rates are a welcome sight for traders.
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