Bitcoin's Position in a Two-Stage Fed Policy Regime: Navigating Powell’s Caution and Trump’s Dovish Potential

The U.S. Federal Reserve’s two-stage policy regime under Jerome Powell has created a complex macroeconomic landscape for Bitcoin, balancing inflationary pressures with fragile labor market conditions. Powell’s Jackson Hole 2025 speech emphasized a data-driven, cautious approach to rate cuts, signaling that reductions would remain limited through late 2025 unless inflation “weakens convincingly” [1]. This ambiguity triggered $941 million in crypto liquidations as Bitcoin fell below $110,000, underscoring the asset’s sensitivity to central bank signals [1]. However, institutional adoption has provided a stabilizing counterweight. U.S. spot Bitcoin ETFs now manage $134.6 billion in assets under management (AUM), with 68% of Bitcoin held by long-term investors, reflecting growing confidence in its role as a hard-asset hedge [3].

The Fed’s two-stage approach—prioritizing inflation control in the short term while preparing for a gradual easing cycle—has created a liquidity-driven environment where Bitcoin’s price is increasingly influenced by macroeconomic tailwinds. For instance, Bitcoin’s inverse correlation with the U.S. Dollar Index (DXY) has strengthened, with a weak dollar phase historically benefiting the cryptocurrency market [5]. Meanwhile, institutional flows have compressed Bitcoin’s volatility from 4.2% to 1.8%, as corporate treasuries and ETFs absorb large whale transactions [2]. A $2.7 billion Bitcoin whale dump in August 2025 was neutralized by ETF inflows, a stark contrast to pre-2025 cycles marked by 70–80% drawdowns [2].

The potential shift under a Trump administration introduces a pivotal variable. Trump’s public criticism of Powell and advocacy for lower rates has fueled speculation about a dovish successor, possibly by 2026 [1]. A pro-crypto Fed chair could accelerate rate cuts, reducing funding costs and expanding liquidity for digital assets. This scenario aligns with Trump-era regulatory reforms, such as Executive Order 14178, which promotes blockchain innovation while banning a U.S. CBDC [5]. Such policies could enhance Bitcoin’s appeal as a store of value, particularly if inflation persists above 2.8% [3].

However, the transition period is likely to be volatile. Market participants are already pricing in a 300-basis-point rate cut by 2026 under a Trump-appointed Fed, which could push Bitcoin toward $120,000 if institutional adoption continues [2]. Yet, a dovish pivot carries risks: rapid liquidity expansion might reignite inflationary pressures, undermining long-term price stability [4]. The September 2025 FOMC meeting will be critical, with a 25-basis-point cut potentially serving as a catalyst for Bitcoin’s next leg higher [3].

In conclusion, Bitcoin’s positioning in a two-stage Fed policy regime hinges on its ability to navigate Powell’s caution and Trump’s dovish potential. While short-term volatility remains, structural factors—such as institutional adoption, regulatory clarity, and macroeconomic tailwinds—suggest a resilient trajectory. Investors must weigh the Fed’s inflationary constraints against the liquidity-driven opportunities emerging from a potential policy shift.

Source:[1] What Powell's Speech Signals for Rates, Inflation and Assets [https://www.coindesk.com/markets/2025/08/24/crypto-in-late-2025-and-beyond-what-powell-s-speech-signals-for-rates-inflation-and-assets][2] Federal Reserve Policy and Bitcoin Volatility: The Jackson Hole 2025 Impact [https://www.ainvest.com/news/federal-reserve-policy-bitcoin-volatility-jackson-hole-2025-impact-2508][3] Macroeconomic Tailwinds - Bitcoin's 2026 Price Outlook [https://www.bitget.com/news/detail/12560604938995][4] Powell's Rate Cut Signals & ETH Surge [https://blog.amberdata.io/fed-rate-cut-expectations-rise-as-bitcoin-steadies-and-ethereum-surges][5] The Trump Administration's Reshaping of Digital Asset Policy [https://www.federalregulatoryandenforcementinsider.com/2025/05/the-trump-administrations-reshaping-of-digital-asset-policy/]