President Donald Trump’s decision to nominate Kevin Warsh for the Fed chair position has pushed expectations for a March rate cut up to 23%. The American selected Warsh in January to succeed Jerome Powell, whose tenure concludes in May. However, investors still have concerns over his hawkish reputation.

According to data from the Chicago Mercantile Exchange (CME) Group, the probability that markets place on a rate cut at the March Federal Open Market Committee (FOMC) meeting has jumped to about 23%, up sharply from roughly 18.4% just days earlier. Traders are pricing in a 25-basis-point reduction, a sign of growing speculation that the next Fed chair could steer policy toward easier money.

The shift reflects growing speculation among traders that upcoming leadership changes at the Fed could lead to a pivot toward looser monetary policy — even as the central bank’s own policymakers are signaling caution. Traders’ bets on a March cut are notable because they suggest markets are trying to price in developments well before the Federal Open Market Committee has signaled a formal policy change.

Perfumo says Warsh’s nomination gives a mixed macroeconomic message to investors and markets

CME data now showsthe share of investors betting on rate cuts in March at 23%. Earlier, crypto analyst Nic Purkin had noted, “The nomination of Kevin Warsh as the next Fed Chair has shaken markets to the core.” 

According to Puckrin, precious metals slid in late January and early February as markets reacted to Warsh’s reputation for favoring prolonged high interest rates. He argued that investors are adopting Warsh’s outlook on Fed policy, particularly his criticism of the central bank’s oversized balance sheet.

He further noted that should the Fed under Warsh pursue balance sheet cuts, investors may face a more constrained liquidity backdrop.

Thomas Perfumo, a global economist at cryptocurrency exchange Kraken, also said Warsh’s nomination presents a divided macroeconomic message to markets. He contended that crypto markets may need to adjust to stable, not rising, US liquidity and credit following Warsh’s nomination.

This far, crypto traders on Polymarket seea 27% probability of two Fed rate cuts this year. Another 26% have wagered on three cuts in the year, while only 13% see the likelihood of four cuts.

ProCap’s Park says BTC’s biggest rally may come if the asset keeps rising despite high Fed rates

Crypto asset prices often track liquidity trends, rising with rate cuts and falling when higher rates reduce financing options. One crypto analyst noted that Bitcoin’s next catalyst may materialize if the market rethinks the idea that only declining rates are bullish.

“I think we should expect that having more accommodative policies may, in fact, actually not be the catalyst to help us go into a bull market. We have to accept that reality and possibility,” ProCap Financial chief investment officer Jeff Park asserted.

Lowering interest rates is one way the Fed sees to stimulate the economy, and Bitcoin enthusiasts see these policies as creating better conditions for riskier assets. Higher rates have been known to hurt Bitcoin, though Park suggests the next big upside for the asset — potentially its ultimate rally — could come if Bitcoin keeps climbing amid higher Fed rates, a stage he calls “positive row Bitcoin.”

“This is the mythical, elusive perfect holy grail of what Bitcoin is meant to be, which is when Bitcoin goes up as interest rates go up, which is very counterintuitive to the QE theory,” he said. Nonetheless, he claimed that if that were to happen, it would compromise the risk-free rate, meaning they could no longer use traditional methods to price the yield curve. But, he also pointed out that the current monetary system is flawed, and that the Fed and Treasury aren’t working together as effectively as needed to guide national securities.

Source: https://www.cryptopolitan.com/march-rate-cut-bets-jump-to-23/

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