As the US Federal Reserve gears up to modify interest rates on Wednesday, significant changes at the central bank could greatly impact cryptocurrency markets.
The Fed is anticipated to decrease interest rates tomorrow, a move that typically heralds a surge in crypto markets: Lower yields on safer assets like bonds make riskier assets such as crypto more appealing.
This anticipated rate reduction occurs amidst a political struggle and a recent nomination to the Federal Reserve. The Trump administration has accused Fed governor Lisa Cook of mortgage fraud while pushing for her dismissal. Concurrently, the Senate has confirmed White House economic adviser Stephen Miran to the board of governors.
The allegations against Cook and the nomination of someone with ties to the administration could lead to a Federal Reserve that operates with reduced independence, which is vital in shaping crypto policy.
Impact of a Political Federal Reserve on Crypto Policy
The Trump administration aims to oust Cook, appointed during the Biden administration, as it seeks to gain more control over the Federal Reserve. On Aug. 25, the White House’s social media page posted a letter in which Trump terminated Cook, alleging she made false statements regarding mortgage agreements.
Cook has refuted the allegations and has opted not to resign. Her legal team stated the charges were politically driven, accusing the White House of “scrambling to invent new justifications for its overreach.” Cook described the actions as “unprecedented and illegal.”
This Monday, a Washington appeals court prevented the White House from dismissing Cook, allowing her to retain her position while the case is ongoing.
This morning, Miran, an economist and chairman of the Council of Economic Advisors, who has previously made pro-crypto remarks, was confirmed by the Senate.
His appointment is temporary, ending in January 2026, but Miran has not committed to resigning from his White House advisory role if his term extends beyond Jan. 31.
This situation has raised concerns among Democratic lawmakers that the Fed and its monetary policy could become more aligned with Trump’s political ambitions.
Related: Trump intensifies efforts to remove Fed’s Cook ahead of anticipated rate cut
Aaron Brogan, founder of crypto-focused law firm Brogan Law, remarked to Cointelegraph, “The Fed holds significant authority over banks, which in turn are quasi-regulators of the crypto industry by deciding who can access financial services.”
“That influence is unlikely to diminish with a less independent Fed, but the policy may. I would surmise it would be more changeable and open to public sentiment.”
A politicized Fed represents unfamiliar territory. When questioned about the implications of a less independent Fed for US monetary policy, Brogan said, “Nobody knows.”
“There’s an assumption that a dependent Fed would adopt more liberal, extravagant monetary policies due to its responsiveness to public opinion, which is often fickle. But as we haven’t witnessed this scenario, it remains speculation. In this administration’s case, at least, Trump would lower rates.”
Crypto Market Prepares for Federal Reserve Rate Adjustment
As politicians in Washington debate the future of the central bank, crypto markets are bracing for tomorrow’s Fed meeting, where a rate cut is expected.
Kevin Rusher, founder of the real-world asset (RWA) borrowing and lending platform RAAC, stated to Cointelegraph that “markets are on edge.”
“Resuming the rate-cutting cycle could unlock the $7.2 trillion held in money market funds, alongside trillions in outstanding mortgage debt.”
He anticipates that liquidity will shift towards alternative yield-generating investments, such as those in decentralized finance (DeFi) and RWAs.
Alice Liu, research lead at CoinMarketCap, noted that “high-beta layer 1s” like Ether (ETH) and Solana (SOL) are particularly sensitive to Fed interest rate changes.
“These behave similarly to growth technology — more susceptible to liquidity and risk appetite than BTC. Especially with potential capital influx due to interest rate cuts, investors may pursue further investment into ETH’s ‘digital oil’ narrative or SOL’s growth in adoption,” she explained.
She added that DeFi tokens become “relatively more attractive” when interest rates decline, enhancing tokens associated with lending/DEX activity. While Bitcoin is “still the quality crypto” and less reactive to interest rate shifts, it can still fluctuate “around major policy surprises and liquidity transitions.”
The Kobeissi Letter reported, “When the Fed lowers rates near all-time highs, the S&P 500 typically responds positively.” Although immediate effects vary, “in every instance this has occurred 20 times, the S&P 500 has ended up higher one year later.”
They anticipate similar results this time around. “Short-term volatility may increase, but long-term asset holders will benefit.”
“Gold and Bitcoin are already aware of this. The consistent upward price tendencies we’ve observed in these assets reflect the forthcoming changes. Gold and Bitcoin recognize that lower rates in an already STRONG environment will only lead to higher asset prices. It’s an excellent time to possess long-term investments.”
The political struggle for control over the Fed remains unresolved, but regardless of who is in power, low interest rates are advantageous for traders.
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