Today, the U.S. central bank, the Federal Reserve (Fed), is in the spotlight. A decision on an interest rate cut is expected, something that both financial markets and the crypto world are watching closely. Such a move not only affects the value of the dollar but can also significantly influence the prices of digital currencies like Bitcoin.

What exactly is happening today with the Fed?

The Federal Open Market Committee (FOMC) will decide today on monetary policy. Analysts expect a cut of about 25 basis points. While this may seem like a small step, it could have major consequences. A lower rate makes borrowing cheaper, stimulates economic activity, and reduces government debt costs. At the same time, it can put pressure on the dollar‘s value, as savers and investors earn less from traditional fixed-income products.

The forgotten ‘third mandate‘ of the Fed

In addition to the well-known goals of price stability and maximum employment, the Fed also has a third, often overlooked objective: maintaining moderate long-term interest rates. For years, this was barely mentioned, as it was usually achieved automatically.

Now this mandate is being revisited as a reason to actively intervene in the bond market. Think of tools such as yield curve control, where the Fed buys government bonds to lower or stabilize rates. This can help the government finance its soaring debt while also pushing down mortgage rates to support the housing market.

Impact on the dollar and the crypto market

An interest rate cut by the Fed generally leads to more liquidity in the market and a weaker dollar. For crypto, this can be positive, as investors often view digital assets as an alternative and as protection against currency devaluation. Still, the reaction remains uncertain and will largely depend on how the Fed communicates and explains its decision.

For the dollar: A rate cut and a possible focus on long-term rates could weaken the currency. The more liquidity flows into the system, the greater the risk that the dollar‘s purchasing power declines.

For crypto: Investors may view crypto as an alternative less dependent on central banks. Bitcoin and other digital assets are often seen as a hedge against inflation and currency devaluation. When traditional investments yield less, additional capital may flow into the crypto market.

Possible scenarios for investors

Although the outcome remains uncertain, there are roughly three scenarios that could influence the market:

Small cut, cautious stance maintained: the Fed makes a minor reduction but stresses restraint. The dollar may remain relatively stable, and the impact on crypto would be limited.

Longer-term easing: alongside the rate cut, the Fed signals that further steps could follow if the economy requires it. This could weaken the dollar and increase inflows into crypto.

Aggressive cut or explicit focus on the third mandate: if the Fed clearly indicates it will actively suppress long-term rates, this could trigger a major capital shift. For crypto, this scenario could be particularly favorable.

Conclusion

Today‘s decision could set the tone for the coming months. Whether it‘s a small step or a clear shift toward prolonged low rates, the consequences extend beyond just the bond or stock market. Crypto investors are also paying close attention, as monetary policy and digital assets are becoming increasingly intertwined.

Disclaimer: This is not financial advice. Always consider doing your own research and seeking professional guidance.