Midterm Elections and Fed Leadership Shake Up USD Risk for 2025
TD Securities warns that three converging forces — the 2024 U.S. midterm election outcomes, Federal Reserve leadership turnover in 2025, and rising U.S. dollar volatility — create heightened market uncertainty into 2025. The midterms produced political realignments that affect tax policy, spending bills, financial regulation and debt-ceiling negotiations; TD Securities notes fiscal-policy uncertainty typically lasts 6–9 months post-election. Concurrent Fed transitions (regional bank presidents retiring, Board of Governors turnover and research head changes) raise questions about policy continuity and FOMC voting dynamics. Currency strategists highlight risks to USD valuation from weakened fiscal-monetary coordination, international reallocations out of U.S. assets, and higher transaction costs for dollar-denominated trade. Market impacts include greater equity volatility (earnings translation effects), bond yield-curve pressure, increased commodity price swings and rising hedging activity in derivatives. TD Securities cites historical parallels (2010, 2018 midterms; 2014, 2018 Fed transitions) but stresses current inflation dynamics make direct comparisons imperfect. Traders are advised to monitor political and Fed developments closely, adjust duration and currency exposures, and increase stress-testing and hedging. Primary keywords: USD risk, Fed leadership, midterm elections, currency volatility, fiscal policy. Secondary keywords: FOMC rotation, fiscal-monetary coordination, hedging, reserve reallocation.
Neutral
The report outlines elevated uncertainty rather than a clear directional driver for crypto markets. USD volatility, fiscal-policy shifts and Fed leadership changes raise risk and hedging demand, which can produce short-term dislocations in crypto (higher correlation with risk assets and shifts in dollar liquidity), but do not by themselves establish a sustained bullish or bearish trend for cryptocurrencies. Short-term: expect higher intraday volatility, wider spreads, increased hedging and periodic flight-to-safety flows (USD strength episodes can pressure USD-pegged stablecoins and USD-denominated liquidity). Long-term: structural impacts depend on subsequent fiscal outcomes and Fed policy path — sustained dollar weakness or persistent loose fiscal policy could be supportive for crypto as an alternative store of value, while tighter policy and renewed USD strength would be negative. Historical parallels: 2018 political uncertainty and 2014–2018 Fed transitions created episodic volatility and rotating sector leadership rather than permanent trends. Traders should prioritize hedging, reduce leverage, monitor FX and rates moves, and watch for changes in institutional USD demand or reserve allocation that could materially shift crypto capital flows.