May Fed Meeting: Rates Held, QT in the Shadows, and the 'Hidden Liquidity Bomb' in the Crypto Market

May Fed Meeting: Rates Held, QT in the Shadows, and the 'Hidden Liquidity Bomb' in the Crypto Market

Another Federal Reserve decision day, and the crypto market keenly watches "Uncle Jerome Powell." After years of observation, we know there's a lot of "blah blah blah," but some points are crucial. Today, attention turns to when interest rates will actually fall and a detail about the Fed's balance sheet that few noticed – a possible "under the table" action that might be more aggressive than the discourse suggests.

Stay here to understand what really happened, what to expect in the coming months, and how the Fed, despite its soft talk, might be acting differently. Let's dive into this analysis without delay!

Fed Decision (May 7th): Rates Stable, No Surprises... For Now

As widely expected, the Fed decided to maintain the interest rate at its current level.

Expectations Confirmed: Interest Rate Unchanged

With the FedWatch Tool already indicating a 98-99% chance, holding rates was no surprise. The market had already priced this decision in.

Next Cuts? June Off the Table, July Uncertain, September on the Radar

Speculation now shifts to when the cuts will begin:

• June: Practically ruled out. After the meeting, the chance of no cut in June rose to about 74%.

• July: The prospect of a cut is concentrated here, with approximately a 56% chance, but this could change as new economic data emerges in May and June.

• September: Emerges as a real possibility. Some believe the Fed might wait for the impact of tariffs to materialize before acting, even if it means arriving "late" – something the Fed has done in the past, waiting for problems to worsen before intervening.

Powell's Speech: Inflation, Tariffs, and the Unemployment "Trigger"

Jerome Powell, in his speech, focused on inflation and the potential impact of tariffs, stating that the Fed will remain "data-dependent."

"Data-Dependent": The Fed's Caution with Tariffs and Inflation

Powell indicated that while recent inflation data seems controlled (PCE in line, Trueflation pointing downwards), the tariff "shock" is still a variable the Fed wants to observe before making more drastic decisions on rates. The long-term inflation target of 2% remains their guide.

The Importance of the Unemployment Rate for Future Cuts

A crucial point, and perhaps the real "signal" Powell is waiting for, is the unemployment rate. He indicated in 2024 that a significant increase in unemployment would be a strong trigger for rate cuts. If the unemployment rate "spikes," the Fed might cut rates more aggressively (perhaps 1% at once).

The QT Mystery: What Did the Fed Really Say (and Not Say) About Balance Sheet Reduction?

Here lies one of the most intriguing and under-discussed points of today's meeting: the communication about Quantitative Tightening (QT).

Expectation vs. Reality of the May Meeting

Many expected a clear announcement about the end or continuation of the Fed's balance sheet reduction (the $5 billion/month in Treasuries and $35 billion/month in Mortgage-Backed Securities - MBS).

The Vague Statement: Did $5 Billion and $35 Billion Disappear from the Paper?

Today's official statement was surprisingly vague. It states the committee will continue reducing its holdings of Treasuries and MBS, but crucially, it no longer mentions the specific amounts of $5 billion or $35 billion that were in previous statements.

Uncertainty Generated: Is the Fed Hiding the Liquidity Game?

This omission raises questions: Did the Fed stop or alter QT and not want to communicate it clearly? Is it trying to "hide the data"? Questions at the press conference did not explore this fundamental point, leaving the market with more uncertainty.

The Silent "Bomb": Stealth Liquidity Injection?

Despite the lack of clarity on QT, there are signs the Fed might indeed be injecting liquidity more discreetly.

Recent Fed Bond Purchases: Unusual Activity? ($40 Billion)

Over the last 3 days, purchases of about $40 billion in short-term bonds by the Fed were observed, with more operations scheduled for today (May 7th) and tomorrow (May 8th). This activity does not seem like natural monthly debt rollover.

"Hidden Stimulus" in Action? Following the Liquidity Trail

These purchases could be a form of "hidden stimulus," a way to inject liquidity into the system without a formal Quantitative Easing (QE) announcement. As we always say: liquidity doesn't lie. Even if it's a smaller volume than the 2021 QE, it's still a move.

Global Context and Crypto Implications

Other global factors also play a role.

China Stimulating and US Debt Refinancing Needs

China is already starting to implement stimulus (like reducing bank reserve requirements). Furthermore, the pressing need for the US to refinance its trillion-dollar debt at lower interest rates remains a structural driver for a future looser monetary policy.

Crypto Market Reaction: Stable Prices, Already Priced In?

Bitcoin, for example, remained stable in the $96,300 range after the Fed's announcement. This suggests that holding rates and most of the speech were already priced in. Significant price changes will now depend on new data or a clearer shift in the Fed's tone on future cuts or QT.

Investor Strategy: Navigating Post-Fed Uncertainty

Given this picture of cautious discourse and possible covert actions, how should investors position themselves?

Patience and Focus on Real Signals (Unemployment, Fed Actions)

More than ever, patience and focus on the signals that truly matter are needed: the evolution of the unemployment rate (Powell's potential trigger) and the Fed's concrete liquidity actions (visible or "hidden").

The Importance of Cash and Portfolio Strategy

Having cash available and a well-defined portfolio strategy is crucial in times of uncertainty.

Long-Term View: Liquidity (Visible or Hidden) Still Rules

Despite the official "blah blah blah," the need for liquidity to sustain the economy and roll over debt is a reality. Whether through rate cuts, an official end to QT, or "hidden stimulus," the long-term trend still points to more liquidity in the system.

Conclusion: Between Official Discourse and the Fed's Hidden Actions

The Fed's May 2025 meeting held rates, postponed cut expectations to July or September, but left a big question mark over QT. While the official discourse is cautious and data-dependent, signs of bond purchases suggest liquidity might be flowing in less obvious ways.

For the crypto investor, this means looking beyond headlines, focusing on unemployment data, monitoring the Fed's open market operations, and, above all, maintaining strategy and patience. Liquidity, one way or another, tends to find its way.

Want to keep deciphering the Fed's moves and understanding how they impact your crypto investments? Don't miss our upcoming analyses and insights!