What Is the FOMC?
The Federal Open Market Committee (FOMC) is the Federal Reserve's policy-making body that sets interest rates for the United States. They meet eight times per year to decide whether to:
Raise Rates: Increases borrowing costs to cool inflation; typically bearish for risk assets like crypto.
Lower Rates: Makes money "cheaper" to stimulate growth; typically bullish as liquidity increases.
Hold Rates: Maintains the status quo while the committee monitors incoming economic data.
As of January 28, 2026, the Fed held interest rates at 3.5%–3.75%. While this decision was widely expected, markets are now focused on the upcoming leadership transition, as Federal Reserve Chair Jerome Powell's term expires on May 15, 2026.
The Fed's Balance Sheet Also Matters
Beyond interest rates, the Federal Reserve also controls liquidity through its balance sheet — essentially buying or selling assets to add or remove money from the financial system. Quantitative easing (QE) injects liquidity and typically benefits crypto, while quantitative tightening (QT) drains liquidity and creates headwinds. As of January 2026, the Fed continues its QT program, though at a slower pace than 2023-2024.
Why the Fed Matters for Crypto
Cryptocurrencies like Bitcoin are considered "risk-on" assets, meaning they thrive when liquidity is high and alternative "safe" yields are low.
1. The Opportunity Cost of Capital
When interest rates are high, "safe" investments like U.S. Treasury bonds become more attractive. At the current 3.5% rate, investors can earn reliable returns without the extreme volatility of crypto, which often pulls capital away from the digital asset market.
2. Liquidity Conditions
Lower interest rates mean "cheaper money" flowing through the financial system. This liquidity often finds its way into higher-risk, higher-reward assets like cryptocurrencies. Conversely, higher rates drain liquidity from speculative markets.
3. Dollar Strength (DXY) Correlation
There is a strong inverse relationship between the U.S. Dollar Index (DXY) and Bitcoin. When the Fed takes a "hawkish" stance (fighting inflation with high rates), the dollar strengthens, which typically causes Bitcoin to decline.
DXY vs BTC
While Bitcoin often moves independently, it's helpful to understand that during FOMC events, most risk assets move together. In 2025, the S&P 500 rose 24% while Bitcoin gained significantly after its October bottom both responding to the same macro liquidity conditions. When evaluating Fed decisions, crypto investors can also monitor traditional markets as leading indicators of risk sentiment.
The 2025 "Sell the News" Pattern
Last year proved challenging for crypto traders navigating FOMC meetings. Bitcoin consistently dropped after Fed announcements, regardless of the actual policy decision a phenomenon known as "selling the news."
Bitcoin's Performance After FOMC Meetings in 2025:
Meeting Month | Fed Decision | BTC Performance (48 hours) |
January | Hold | -27%
March | Hold | -14%
May | Cut (0.25%) | +15%
June | Hold | -8%
July | Hold | -6%
September | Cut (0.25%) | -7%
October | Cut (0.25%) | -29%
December | Cut (0.25%) | -9%
Bitcoin only rallied after 1 out of 8 FOMC meetings in 2025, even during a cutting cycle that should theoretically benefit risk assets. This suggests that "priced-in" expectations often outweigh the actual policy change.
In January 2026, despite the Fed's decision to hold, BTC fell from a Tuesday high near $90,400 to $83,383 by Thursday, marking a -7.3% 48 hour performance, and is currently at $82,406 at time of writing.
Why does Bitcoin often drop despite positive news? By the time the Fed announces a rate cut, traders have already bought in anticipation. When the event finally happens, those early buyers take profits, causing prices to fall — a classic "sell the news" dynamic. This is why monitoring tools like CME FedWatch before meetings is crucial.
The 2026 Leadership Transition
On January 30, 2026, President Trump officially nominated Kevin Warsh to succeed Jerome Powell as the next Chair of the Federal Reserve. This appointment marks a pivotal shift for global markets, as the Fed Chair's approach to inflation and growth will significantly influence crypto market conditions through 2030.
While several candidates were initially in the running including BlackRock’s Rick Rieder, who once held a 50% probability on the Polymarket prediction market — Warsh emerged as the final choice.
Policy Stance: Warsh is characterized as a "market-oriented reformer." He has recently advocated for a rules-based policy and lower interest rates, aligning him with the current administration’s economic goals.
Market Impact: The nomination initially brought a "Warsh Premium," as markets reacted to the prospect of a more predictable, institutional-friendly leadership compared to more unconventional "outsider" alternatives. This was marked with a further drop in BTC prices from around $83K to $76.3K at time of writing.
BTC prices early 2026
Current Status: Warsh now moves to the Senate confirmation process. If confirmed, he is expected to take the helm when Powell’s term expires in May.
What Comes Next
Upcoming Key Dates:
Q1 2026: Kevin Warsh’s Senate confirmation hearings (expected).
March 17-18, 2026: Next FOMC meeting with updated economic projections (the "Dot Plot").
May 15, 2026: Jerome Powell's term officially ends; expected start of the Warsh era.
Tools for FOMC Analysis
Here are some key tools for FOMC analysis:
CME FedWatch Tool
What it shows: Market-implied probabilities for future rate decisions
How to use it: Check whether a rate move is already "priced in" before the meeting
Key insight: If a rate cut already has 90%+ probability, the announcement may not trigger a rally even if the cut happens
FedWatch tool
For example, in the above target rate probabilities for the 18 March 2026 meeting, the chart is in favor of a target rate of 350-375, meaning the Federal Reserve is aiming to maintain an interest rate of 3.5% to 3.75%.
The Dot Plot
The dot plot is released quarterly, and offers a visual summary of where individual Federal Reserve officials believe interest rates are headed in the future.
Dot Plot
How to Read the Dot Plot
The chart consists of a grid:
The Horizontal (X) Axis: Shows time, typically broken down by the end of the current year, the next two to three years, and the "Longer Run" (the target "neutral" rate).
The Vertical (Y) Axis: Shows the target interest rate percentage.
The Dots: Each dot represents one official’s anonymous projection for where rates should be at the end of that period. Up to 19 officials can contribute a dot.
What Investors Look For
The Median Dot: This is the most critical data point. It represents the "consensus" or middle-ground expectation of the Fed. For 2026, the current median dot suggests one 25-basis-point rate cut for the year.
Clusters vs. Outliers: When dots are tightly clustered, it signals broad agreement among policymakers. Large gaps or scattered dots indicate high uncertainty or disagreement within the Fed.
Shifts Over Time: Analysts compare the new dot plot to the previous one. If the dots move higher than before, the Fed is leaning "Hawkish" (higher rates to fight inflation); if they move lower, they are leaning "Dovish" (lower rates to support growth).
Why it Matters for Crypto
The dot plot essentially maps out the future liquidity environment.
Bullish Scenario: If the dot plot shows a steep downward trend (more aggressive cuts), it signals that "cheap money" is coming back, which typically drives investors toward high-risk assets like Bitcoin and Solana.
Bearish Scenario: If the dots for future years move higher (the "higher for longer" narrative), it increases the opportunity cost of holding crypto compared to yield-bearing bonds, often leading to market pullbacks.
Important Caveat: The dot plot is a set of projections, not a promise. Officials frequently change their "dots" as new economic data on inflation and employment arrives.
Risk Management Strategies
FOMC days are notorious for "liquidation cascades" where high leverage positions get wiped out in minutes. You can consider protecting yourself by:
Before the Announcement:
Reduce position sizes or close leveraged positions.
Set wider stop-losses to avoid getting stopped out by temporary volatility spikes.
Avoid placing new entries in the hours leading up to the announcement.
During the Announcement Window (2:00-3:00 PM ET):
Step away from active trading if you're not experienced with high-volatility events.
Let the initial volatility settle before making decisions.
Remember: The first price move is often reversed within hours.
After the Announcement:
Wait for clear direction before re-entering positions.
Review the actual statement and press conference transcript, not just price action.
Consider that the market's interpretation may evolve over 24-48 hours.
What Comes Next
Upcoming Key Dates:
January 30, 2026 – Fed Chair nominee announcement (today)
March 17-18, 2026 – Next FOMC meeting with updated economic projections
May 15, 2026 – Jerome Powell's term officially ends
The next four months represent a unique period of uncertainty for crypto markets. While Jerome Powell remains technically in charge through May, the announcement of his successor will immediately begin shifting market expectations about the Fed's future direction.
The "lame duck" period between the nomination announcement and the official transition could create unusual market dynamics. If the incoming Fed Chair signals a dramatically different approach to monetary policy — whether more dovish (pro-growth) or more hawkish (anti-inflation) — crypto markets may begin pricing in those expectations months before any actual policy changes occur.
Fed leadership transitions have historically created extended periods of market volatility. The 2018 transition from Janet Yellen to Jerome Powell coincided with significant turbulence as markets adjusted to Powell's more hawkish stance. This time, the crypto market faces additional complexity: institutional adoption has grown dramatically since 2018, meaning the incoming Fed Chair's approach to monetary policy will affect not just retail traders but also major financial institutions with Bitcoin and Ethereum exposure.