Fed’s Dovish Pivot Sets Stage for Potential Crypto Rally in Q4

Federal Reserve Chair Jerome Powell’s latest remarks have reignited optimism in the crypto sector, as investors brace for a potential easing cycle that could fuel a late-year rally across digital assets.

Speaking on Tuesday about the central bank’s balance sheet strategy, Powell acknowledged growing “downside risks to unemployment,” signaling a dovish shift toward looser monetary policy. He added that the Fed had already taken steps toward a “more neutral stance” at its September meeting.

The statement reinforced expectations that the Federal Reserve is nearing the end of its tightening cycle, a development that historically benefits risk assets such as cryptocurrencies.

End of QT Could Pave the Way for Rate Cuts

Powell suggested that the Fed may soon stop shrinking its balance sheet, marking the conclusion of the quantitative tightening (QT) phase and setting the stage for more rate cuts.

According to CME futures data, markets are pricing in a 95.7% chance of a 0.25% rate cut at the Fed’s upcoming October 29 meeting. The odds of another 0.25% reduction in December stand at 94.8%, indicating a likely total cut of half a percentage point by year-end.

JPMorgan Chief Economist Michael Feroli said Powell’s comments confirmed market expectations of an imminent rate cut. “While there was little doubt the FOMC would ease at its next meeting, today’s remarks were strong confirmation,” he noted.

Bitcoin analyst and entrepreneur Joe Consorti echoed this view, describing the Fed as “completely dovish” and pointing out that 125 basis points of rate cuts are already priced in. “BTC has been effectively rangebound since May. You know what happens next. Don’t overthink it,” he added.

Consorti also emphasized that as quantitative tightening winds down and policy rates trend below 3%, Bitcoin will benefit from “the tailwinds of easing” that historically support asset price expansion.

What QT and QE Mean for Markets

Quantitative tightening refers to the process of reducing the central bank’s balance sheet by allowing assets like bonds to mature without reinvestment. Its reversal, quantitative easing (QE), involves asset purchases that inject liquidity into the financial system — a scenario that tends to boost cryptocurrencies and equities alike.

Market Reaction Still Cautious

Despite Powell’s dovish tone, crypto markets remained subdued following the weekend’s large-scale liquidation event. Total market capitalization slipped below $4 trillion, with Bitcoin briefly dipping under $110,500 before recovering to around $112,500 in Wednesday’s Asian session.

Ethereum also faced pressure, dropping below $4,000 before rebounding slightly to trade near $4,120. Most altcoins continued to struggle, with only limited recoveries across major assets.

Analysts expect a delayed reaction, noting that liquidity expansion and policy easing typically take several weeks to reflect in asset prices. However, with the Fed now clearly signaling a softer stance, many see the groundwork laid for a renewed crypto uptrend heading into the final quarter of 2025.