Crypto and the Fed: What the Interest Rate Decision Means

On Tuesday, June 18, at 2 PM New York time, The Federal Reserve (the Fed) will deliver its latest decision on the interest rate. While these announcements occur roughly every six weeks, this meeting is drawing unusually high attention from global markets.

Firstly, the rate has been at a high level for some time, and markets are wondering if a cut might be on the horizon. Secondly, amid global geopolitical instability and internal tensions in the world economy, every Fed action is seen as a signal.

In this article, we explain what the interest rate is and how it works. We also discuss why it matters not just for banks and economists, but for cryptocurrency holders as well. And finally, what the markets expect today and why even those who never followed interest rates before are paying attention now.

What is the Fed’s Interest Rate and Why Does it Matter?

The Federal Reserve System is responsible for USD price stability and the resilience of the U.S. financial system.

One of its key tools is the interest rate, formally called the “federal funds target range.” This rate determines the cost of short-term loans between banks but indirectly influences all lending segments from mortgages and car loans to business credit.

When the Fed raises the rate, borrowing costs increase throughout the economy. Banks pass on higher costs to their loan products, which reduces consumer and business activity. As a result, overall economic growth may slow down.

Conversely, lowering the rate makes borrowing cheaper, encouraging investment, spending, and job growth. However, too much stimulus can raise the risk of hyperinflation and economic overheating.

The Fed uses the interest rate to manage the economic cycle. Decisions are made by the Federal Open Market Committee (FOMC), which meets about every six weeks to assess key macroeconomic indicators: inflation, unemployment, and GDP growth. These data help determine whether the economy needs cooling down or stimulation.

Fed Interest Rate: Overview for Summer 2025

At the time of writing, the interest rate remains between 4.25% and 4.50%. This is relatively high, especially compared to pre-2022 levels, when it hovered between 0.00% and 0.25%.

Back then, the Fed was trying to support the economy following the COVID-19 pandemic, which began in 2020 and caused a sharp decline in business activity, rising unemployment, and massive disruptions in global supply chains.

In response, the Fed lowered the rate nearly to zero and launched quantitative easing programs to prevent a deep recession.

But starting in 2022, the rate began to rise sharply, in response to accelerating inflation that became apparent right after lockdown restrictions were lifted.

Prices were affected not only by recovering demand and logistical disruptions but also by new geopolitical risks: Russia’s invasion of Ukraine in February 2022, rising energy prices, and global concerns over the stability of food and raw material supplies.

All these factors increased inflationary pressures, forcing the Fed to adopt a tightening policy. Now, inflation in the U.S. has slowed but remains above the desired 2%. Therefore, the Fed is cautious about lowering the rate for the time being. Meanwhile, the labor market remains resilient, and consumer spending has not dropped as sharply as expected.

For these reasons, many analysts expect the Fed to keep rates steady. However, markets are eagerly awaiting signals on when a rate-cutting cycle might begin.

Why the Fed’s Decision Matters More Than Ever

Fed meetings always affect financial markets. But interest in the upcoming June 2025 meeting is particularly high.

This is due to several factors extending beyond the U.S. domestic economy:

• Military Conflicts in Europe

The war between Russia and Ukraine has entered its fourth year. Fighting is focused in the east and south of Ukraine, with mixed results for both sides. Western countries continue to provide military and financial support to Ukraine, but the offensive momentum has slowed. Sanctions on Russia remain in place, impacting global supplies of oil, gas, and fertilizers. This influences inflation levels in both the EU and the U.S., and increases volatility in commodity markets.

• Instability in the Middle East

The conflict between Israel and Iran has escalated into open warfare. Iran has launched missile strikes on Tel Aviv, causing numerous casualties and significant damage to civilian infrastructure. Israel responded with massive attacks on Iranian military targets in Syria, Iraq, and within Iran itself, including key sites linked to Iran’s nuclear program. Violence has intensified in Gaza and along the Lebanese border. Attacks on commercial vessels in the Red Sea continue, disrupting international trade. These developments drive oil prices up, increase insurance costs, and raise expenses across global logistics chains.

• Rising Tensions Between the U.S. and China

Taiwan remains a central flashpoint in this rivalry. China has conducted military exercises near the island, while the U.S. has increased its military and diplomatic presence in the region. Beyond geopolitics, economic confrontation sharpens. U.S. export controls on semiconductors and strategic components have hurt high-tech industries. China retaliates by restricting rare earth exports. This directly impacts electronics manufacturing costs and global supply chains.

• Focus on Domestic Production and Trump’s Trade Wars

Since Donald Trump’s return to the White House in January 2025, the U.S. has tightened trade policies. The administration announced expanded tariffs on goods from countries with which the U.S. runs a trade deficit – primarily China, but also Canada, Mexico, and several EU nations. Tariffs cover steel, automobiles, solar panels, and household appliances. This worries businesses and may contribute to price increases within the U.S., especially in consumer sectors.

Against this backdrop, the Fed’s actions are seen as a critical component of the global crisis management balance, a last stable variable amid widespread geopolitical uncertainty.

Polymarket as a Gauge of Market Expectations for the Fed

One way to gauge market sentiment is to look beyond official analyst forecasts and examine bets on decentralized prediction markets. Polymarket is among the most prominent platforms, where users put real money on outcomes like elections, economic data, and central bank decisions.

As of writing, the vast majority of Polymarket participants expect the Fed to keep rates steady. The probability of “no change” stands near 98%, while chances of a rate hike or cut are significantly lower.

Why does this matter? Because Polymarket users are staking real money, making it a more sensitive and less biased indicator than traditional analysis. When a consensus is nearly unanimous, it generally reflects expectations already priced into the market.

Thus, Polymarket serves as a useful barometer for market expectations, especially when consensus is this strong.

How the Cryptocurrency Market May React to the Fed’s Decision

The crypto market is particularly sensitive to liquidity conditions and central bank messaging. Before discussing possible reactions to the Fed’s next move, it’s worth recalling how crypto responded to past rate changes.

Historical Crypto Market Reaction to Fed Rates

During the COVID-19 pandemic, the Fed cut rates to historic lows (0% to 0.25%) while launching massive stimulus programs. This flooded markets with liquidity, prompting investors to seek alternative assets.

Between mid-2020 and the end of 2021, Bitcoin’s price rose from roughly $10,000 to a peak near $69,000 in November 2021. This growth was fueled by surging institutional interest, crypto fund launches, and broad public attention.

However, in 2022 the landscape shifted. The Fed aggressively raised rates to fight inflation. Markets reassessed risks, placing crypto assets under pressure. Bitcoin’s price dropped by more than half that year, dipping below $20,000 at times.

This history illustrates how profoundly Fed policy (even those not directly targeting digital assets) can reshape the crypto market’s trajectory.

Possible Scenarios and Their Impact

Scenario 1: Rate Holds Steady

This baseline scenario is priced in by most market participants, including Polymarket traders. The market is likely to respond neutrally or with modest gains. For crypto, this could mean gradual strengthening amid reduced short-term volatility and clearer outlooks.

Scenario 2: Rate Cut

An unexpected cut would signal the start of easing, suggesting the Fed recognizes economic slowdown or mounting external pressures. This would likely boost risk assets including cryptocurrencies. The reaction could be especially strong if forward guidance hints at further cuts.

Scenario 3: Rate Hike

The least likely, but possible scenario. A hike would be a negative surprise, potentially triggering capital outflows from risky sectors like crypto. Higher borrowing costs make low-risk instruments more attractive, typically reducing appetite for volatile assets.

Additional Factors Influencing Market Sentiment

Each scenario will also be shaped by Fed Chair Jerome Powell’s rhetoric and economic forecasts. Market impact depends not only on the decision itself but also on how it’s communicated.

The June 2025 Fed meeting might be the last one conducted under the usual institutional framework. Although the rate is expected to remain steady, President Trump’s administration may be dissatisfied with both the decision and the Fed’s overall course.

Jerome Powell was confirmed for a second term in May 2022. However, the media and experts have already discussed possible leadership changes. Potential successors include Scott Bessent and Kevin Warsh. A premature replacement could occur if the Fed pursues a prolonged tight policy or if the economy cools sharply.

Therefore, investors are watching not only the numbers but also the people. Every statement may be read not only as an economic indicator but also as a political signal. As a market that is highly sensitive to any sign of uncertainty, the crypto sector would likely be among the first to respond.