Trump Signals Fed Chair Replacement and Rate Cuts, Bitcoin Price Reacts

Key Insights:

• Trump says rates will drop drastically after he picks a new Fed chair.
• Bitcoin price trades near $88K as gold rallies on weak dollar sentiment.
• Arthur Hayes links Bitcoin breakout to Fed action on Japan bond crisis

Bitcoin price is showing signs of hesitation after U.S. President Donald Trump said on Tuesday that significant interest rate cuts would follow his nomination of a new Federal Reserve chair. Trump’s comments came just before a closely watched Federal Open Market Committee (FOMC) meeting, sparking speculation about a policy shift, while gold surged and the dollar weakened. Bitcoin briefly spiked, then pulled back as traders evaluated additional macro signals.

During a speech in Iowa on January 27, President Trump said that he would soon announce his nominee to replace Federal Reserve Chairman Jerome Powell, whose term ends in May 2026. Trump said a “great” new Fed chair would signify drastic rate cuts: “You’ll see rates come down a lot,” he told supporters.

This follows months of criticism of Powell, with Trump claiming the current rate of easing has been too slow. The Federal funds rate is at 3.5% to 3.75%, after a series of cuts through late 2025. Trump has long maintained that lower rates are needed to boost borrowing, housing, and broader economic growth.

Despite Trump’s optimism, traders expect no policy change at the current FOMC meeting. The CME FedWatch Tool shows a 97% probability that the Fed will keep rates unchanged this month. However, the chances of a cut by mid-2026 have risen, with many investors awaiting signals from the Fed’s forward guidance.

Trump has reportedly narrowed his list of possible Fed chair candidates to four: BlackRock’s Chief Investment Officer Rick Rieder, former Fed Governor Kevin Warsh, economic adviser Kevin Hassett, and current Fed Governor Chris Waller.

Rieder currently leads in prediction markets, with 48% odds according to data from Polymarket. He has publicly hinted that the Fed may reduce rates by 100 basis points in 2026, a move that aligns with Trump’s messaging. Warsh follows at 25% odds.

The timing of the announcement is unclear, but investors expect that it could coincide with, or follow, the January FOMC meeting. Treasury Secretary Scott Bessent said recently that the announcement could come as soon as next week.

Powell, meanwhile, has defended the Fed’s independence amid growing political pressure. Trump’s public statements have reopened debates over the central bank’s autonomy during an election year.

Following Trump’s comments, the U.S. dollar continued to fall, reaching a four-year low. The U.S. Dollar Index (DXY) is down to 95.6, the lowest level since January 2022. Trump stated that he is “not concerned” with the weakening dollar and suggested that this may aid American exports.

Bitcoin price had initially reacted positively to the prospect of deeper rate cuts, surging briefly above $89,000. At the time of writing, BTC trades at around $90K. In contrast, gold surged to a record high of $5,200 an ounce as traders turned to safer assets amid policy uncertainty.

Crypto markets are still cautious. While lower rates tend to support risk-on assets, including Bitcoin, traders are waiting for firm confirmation of policy direction.

Arthur Hayes, co-founder of BitMEX, has suggested that there could be a liquidity trigger on Bitcoin’s price, and that trigger would not come from the United States directly but from Japan. In a recent blog post, Hayes described a scenario in which rising Japanese bond yields and a weakening yen currency would cause Japanese investors to sell U.S. Treasuries.

To try to even out the situation, Hayes believes the Fed may intervene through a route called “indirect intervention,” in which it creates dollar reserves, swaps them for yen through major banks such as JPMorgan, and buys Japanese Government Bonds (JGBs) with the yen. Such a move would increase the Fed’s balance sheet under its “Foreign Currency Denominated Assets” category.

Hayes believes that Bitcoin historically rallies when central banks are increasing liquidity. However, he also emphasized that he has not yet increased his crypto exposure but is waiting for confirmation through the Fed’s H.4.1 balance sheet report.

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