Author: David, Deep Tide TechFlow
This Thursday, the Federal Reserve will announce the last interest rate decision of the year. Market expectations are very consistent:
According to CME FedWatch data, the probability of a 25 basis point rate cut exceeds 85%.
If it happens, this will be the third consecutive rate cut since September, bringing the federal funds rate down to a range of 3.5%-3.75%.
For cryptocurrency investors accustomed to the narrative of "rate cut = bullish", this sounds like good news.
But the problem is that when everyone expects a rate cut, the rate cut itself is no longer a factor driving the market.
The financial market is a machine of expectations. The prices reflect not 'what has happened,' but 'what has happened relative to expectations.'
An 85% probability means that the rate cut has already been fully priced in; when it is officially announced early Thursday morning, unless there are surprises, the market will not react significantly.
So what is the real variable?
The Fed's attitude towards next year. A 25 basis point cut is basically certain, but how long the rate-cutting cycle can last and how many more times it can cut in 2026 are what the market is truly betting on.
Early Thursday morning, the Fed will update their forecasts for future interest rate paths, and this forecast often influences the market direction more than the current rate cut decision.
However, there are additional problems this time, as the Fed may not have a clear view itself.
The reason is that from October 1 to November 12, the U.S. federal government was shut down for 43 days. During this time, the statistics department suspended work, leading to the cancellation of the October CPI release, and the November CPI was postponed to December 18, which is a full week later than this week's FOMC meeting.
This means that the Fed members lack the inflation data from the past two months when discussing the interest rate outlook.
When decision-makers are themselves groping in the dark, their guidance will be more ambiguous, and ambiguity often means greater market volatility.
First, let's look at this week's timeline:
We can analyze specifically what signals the Fed might give and what kind of market responses they correspond to.
Betting on next year's expectations
After each FOMC meeting, the Fed releases a 'Summary of Economic Projections.'
There is a chart showing all Fed members' expectations for future interest rates.
Each committee member marks a point, indicating where they believe the interest rate should be at the end of the year. Because it looks like a bunch of scattered dots, the market habitually calls it a 'dot plot.' You can find the original dot plots from previous meetings on the Fed's official website.
The chart below is the dot plot released during the FOMC meeting on September 17.
It showcases the internal divisions and consensus within the Federal Reserve. If the points cluster together, it indicates that the members have consistent thoughts, and the policy path is relatively clear.
If the points are scattered widely, it indicates internal controversy, and the future will be full of variables.
For the crypto market, uncertainty itself is a risk factor. It suppresses risk appetite, causing funds to lean towards observing rather than entering.
From the chart, it can be seen that the points for 2025 are mainly concentrated in two areas: around 3.5%-3.625% there are about 8-9 points, and around 3.75%-4.0% there are also 7-8 points. This indicates that the committee is divided into two factions:
One faction believes there should be 1-2 more cuts this year, while another faction believes they should pause or cut only once. The median falls around 3.6%, implying that most people's baseline expectation is for two more cuts within 2025 (including this week's).
Looking ahead to 2026, the divergence among Fed members is even greater.
Currently, the interest rate is 3.75%-4.00%. If it drops to around 3.4% by the end of next year, it means only 1-2 cuts for the entire year. However, from the chart, some members believe it should be cut to 2.5% (equivalent to 4-5 cuts), while others believe it should remain at 4.0% (not cut at all).
Within the same committee, the most radical and the most conservative expectations differ by the space for 6 rate cuts. This is a 'highly divided' Federal Reserve committee.
This division itself is a signal.
If the Fed itself cannot clarify its internal discussions, the market will naturally vote with its feet. Currently, traders' bets are more aggressive than the official guidance. The CME FedWatch shows that the market is pricing in 2-3 rate cuts in 2026, while the official dot plot median only shows 1 cut.
So, this Thursday's FOMC meeting is, to some extent, a 'standoff' between the Fed and the market. Will the Fed lean towards the market or stick to its own pace?
Three scenarios, three responses
Based on the current information, there are generally three possible directions for this week's FOMC.
The most likely scenario is 'meeting expectations': a 25bp rate cut, with the dot plot maintaining the guidance from the last September meeting, and Powell repeatedly emphasizing 'data dependency' without giving a clear direction.
In this case, the market will not experience much volatility. Because the rate cut has been priced in, the guidance has not changed, lacking new trading signals. The crypto market will likely follow the slight fluctuations of U.S. stocks and return to its original trend.
This is also the baseline expectation of most Wall Street institutions, including recent research reports from Goldman Sachs and Raymond James pointing in this direction.
The second possible scenario is 'dovish': a 25bp rate cut, but the dot plot shows that there could be 2 or more cuts in 2026, with Powell's wording being soft, emphasizing that risks in the labor market outweigh inflation risks.
This is equivalent to the Fed aligning with market expectations, confirming the easing path. A weaker dollar will boost dollar-denominated assets, while improved liquidity expectations will uplift market sentiment. BTC and ETH may follow U.S. stocks in rebounding, with the former expected to test recent highs.
The less likely but not impossible scenario is 'hawkish': although a 25bp rate cut is expected, Powell emphasizes persistent inflation, suggesting limited space for rate cuts next year; or multiple dissenting votes may appear, indicating internal resistance to continued easing.
This essentially tells the market 'you are overthinking it,' leading to a stronger dollar, tightening liquidity expectations, and pressure on risk assets. The crypto market may face a correction in the short term, especially for high beta altcoins.
However, if the wording is just slightly hawkish rather than a substantive policy shift, the decline is often limited and may instead present an entry opportunity.
Under normal circumstances, the Fed would adjust the dot plot based on the latest data. However, this time, they lacked two months of CPI data due to the government shutdown and could only make judgments based on incomplete information.
This brings several chain reactions. First, the reference value of the dot plot itself is discounted; if the members themselves are uncertain, the points drawn may be more dispersed.
Additionally, Powell's press conference will carry more weight, and the market will look for direction in every word he uses. If the trends shown in the dot plot are inconsistent with Powell's remarks, the market will be more confused, and volatility may increase.
For crypto investors, this means that the market conditions early Thursday morning may be harder to predict than usual.
Rather than betting on direction, it is better to focus on the volatility itself. When uncertainty rises, controlling positions is more important than betting on rises or falls.
Job vacancy data is not as important as you might think.
What has been discussed is Thursday's FOMC, but JOLTs will also be released this Tuesday.
Occasionally, there are people on social media who suggest it is very important, like 'quietly deciding the direction of liquidity.' But to be honest, JOLTs does not carry much weight in macro data. If your time is limited, just focus on Thursday's FOMC.
If you want to learn a bit more about the background information of the labor market, you can continue to read.
JOLTs stands for Job Openings and Labor Turnover Survey, which translates to 'Job Vacancies and Labor Force Turnover Survey.' It is published monthly by the Bureau of Labor Statistics (BLS) and tracks how many job openings there are in U.S. companies, how many people have been hired, and how many have left their jobs.
The most closely watched data is 'job openings': the higher the number, the stronger the demand for recruitment, indicating a tighter labor market.
In 2022, this number peaked over 12 million, indicating that companies were frantically hiring and wages were rising rapidly, which the Fed worried would drive up inflation. Now, this number has fallen back to around 7.2 million, essentially returning to pre-pandemic normal levels.
Why is the importance of this data possibly overstated?
First, JOLTs is a lagging indicator. The data being released today is for October, but it is already December. The market focuses more on timely data, such as weekly initial unemployment claims and the non-farm payroll report released at the beginning of each month.
Secondly, the expectation of around 7.1 million job vacancies is not considered 'overheated.' Analysts previously pointed out that the ratio of job vacancies to unemployed persons has fallen below 1.0 in August, meaning that there is currently less than one job opening for every unemployed person.
This is completely different from the situation in 2022 where 'one unemployed person corresponds to two job openings.' The narrative of the labor market being 'overheated' is actually outdated.
According to forecasts from LinkUp and Wells Fargo, tonight's October JOLTs is likely around 7.13-7.14M, which is not much different from the last figure of 7.2M.
If the data meets expectations, the market will generally not react; it merely confirms the existing narrative of 'the labor market continues to cool slowly,' which will not change anyone's expectations of the Fed.
Tonight's data is more like an 'appetizer' before the FOMC, with the real meal coming early Thursday morning.
How will my BTC perform?
The earlier chapters discussed macro data, but you may be more concerned about one question: how will these things affect my BTC and ETH?
To conclude, it will have an impact, but it's not as simple as 'rate cut = rise.'
The Fed's interest rate decisions influence the crypto market through several channels.
First is the dollar. A rate cut means the yield on dollar-denominated assets decreases, and funds will seek other places. When the dollar weakens, dollar-denominated assets (including BTC) often perform better.
The second is liquidity. In a low-interest environment, borrowing costs are low, and there’s more money in the market, with some flowing into risk assets. The bull market from 2020-2021 was largely a result of the Fed's unlimited quantitative easing.
The third is risk appetite. When the Fed releases dovish signals, investors are more willing to take risks, with funds flowing from bonds and money market funds into stocks and cryptocurrencies; conversely, hawkish signals will lead to funds returning to safe assets.
These three channels together constitute the transmission chain of 'Fed policy → dollar/liquidity → risk appetite → crypto assets.'
In theory, BTC now has two popular identities: 'digital gold' or 'risk asset.'
If it is digital gold, it should rise during market panic like gold and have a negative correlation with the stock market. If it is a risk asset, it should rise and fall with Nasdaq and perform well during liquidity easing.
The reality is that over the past few years, BTC has resembled the latter.
According to research by CME, since 2020, the correlation between BTC and Nasdaq 100 has jumped from close to zero to around 0.4, sometimes even exceeding 0.7. The Kobeissi Letter recently pointed out that BTC's 30-day correlation reached 0.8 at one point, the highest level since 2022.
However, an interesting phenomenon has recently emerged. According to CoinDesk, the correlation between BTC and Nasdaq has dropped to -0.43 over the past 20 days, showing a clear negative correlation.
Source: https://newhedge.io/
The Nasdaq is only 2% away from its historical high, while BTC has dropped 27% from its October peak.
Market maker Wintermute has an explanation for this: BTC currently shows 'negative skew,' falling more when the stock market drops and reacting sluggishly when the stock market rises. In their words, BTC 'only shows high beta in the wrong direction.'
What does this mean?
If this week's FOMC releases dovish signals and U.S. stocks rise, BTC may not necessarily rebound in sync; but if it releases hawkish signals and U.S. stocks fall, BTC may drop even more sharply. This is an asymmetric risk structure.
Summary
After discussing so much, let me give you a framework for ongoing tracking.
What to watch for this week (December 9-12)?
The core issue is the FOMC meeting early Thursday morning. Specifically, look for three things: whether there is a change in the dot plot, especially regarding the median interest rate expectation for 2026, whether Powell's press conference wording is dovish or hawkish, and whether there are multiple dissenting votes in the voting results.
What to watch for in mid to late December?
The November CPI will be reissued on December 18. If inflation data rebounds, the market may reprice next year's rate cut expectations, and the Fed's narrative of 'continuing easing' will be challenged.
What to focus on in Q1 2026?
First is the personnel changes of the Fed Chair. Powell's term expires in May 2026.
Secondly, the continued influence of Trump's policies. If tariff policies expand further, they may continue to push inflation expectations higher, constraining the Fed's space for easing.
Additionally, continue to watch whether the labor market accelerates in deterioration. If layoff data begins to rise, the Fed may be forced to accelerate rate cuts, leading to another script.
(The above content is excerpted and reprinted with the authorization of partner PANews, original link | Source: Shenchao TechFlow)
"When a rate cut has become consensus, will the market retrace due to 'good news already priced in'?" This article was first published on (BlockTempo).
