The Federal Reserve has opted to cut the federal funds rate by 0.25%, with a general expectation among investors and analysts that the institution will not implement any more cuts. The targeted range is now between 3.5% to 3.75%.
Crypto markets have held steady in response to the news, with BTC dipping by 2.47%. The Fed’s hawkish response comes at a time when digital asset prices are slowly recovering from the November dip.
Takeaway 1: The crypto markets now appear to be pricing in Fed rate cuts ahead of time
Initially, the market used to respond to federal rate cuts when they happened, but now, as the market has matured, it appears to be pricing the rate cuts before they happen.
A general pattern was established in 2023 of cryptocurrency bull and bear markets coinciding with periods of monetary tightening and loosening, as per an S&P Global study. But the pattern no longer holds as the new targeted range didn’t seem to affect the prices on the day. Long-term market patterns are yet to be seen.
Takeaway 2: Probabilities for future rate cuts in January are slim
FedWatch has marked the possibility of a federal rate cut, giving a 19.9% chance that the it will be cut down to a target range of 3.25% to 3.50%.
Federal reserve chairman Jerome Powell said at the meeting that he saw rate hikes as unlikely, only highlighting three possibilities: that rates hold steady, they’re cut, or they’re cut a lot.
However, with a change in the head of the Federal Reserve slated for 2026, U.S. President Donald Trump is more likely to push more rate cuts aggressively, in line with his agenda to boost the U.S. economy anyway he can, whether it’s tariffs or promoting a cryptocurrency-friendly environment. He also said he thinks
Trump is currently hosting interviews with potential candidates to judge the most suitable one for the post. Prediction markets overwhelmingly favour Kevin Hassett, but an interview has been fixed in place with Kevin Warsh as well.
Takeaway 3: The board was split more than ever since 2019
According to CNBC, the board is more split than it’s ever been since 2019 on how to handle rate cuts, with two members leaning towards no rate cuts and one preferring a larger cut. This signifies a split in opinion as to how the economy should be run, whether keeping a strong labour market is a priority while risking inflation, or keeping rates stifled, which would curb inflation but keep unemployment as it is.