The Federal Reserve cut interest rates by 25 basis points at the end of the year, causing significant market volatility. What's next?

Shaw, Jinse Finance On December 11th, the Federal Reserve ended the year with a rate cut, lowering the benchmark interest rate by 25 basis points to 3.50%-3.75%, marking the third consecutive rate cut at its meeting, in line with market expectations. This brings the total rate cuts this year to 75 basis points. While the FOMC statement followed a standard pace of rate cuts, it revealed the biggest internal division among policymakers in six years, suggesting a slower pace of action next year and a possible lack of immediate action. Following the announcement, Fed Chairman Powell's press conference was more dovish than expected. After the Fed's decision, major global markets reacted differently: US stocks, short-term US Treasury bonds, and gold rose during the session, the dollar fell, and Bitcoin fluctuated, briefly rising to $94,500 before significantly retreating. The Fed ended the year with a 25 basis point rate cut, but why is internal division still intensifying? The dot plot and Powell's press conference were more dovish than the market expected. What are the reasons behind this, and how should we interpret them? Where will the market go next?

I. The Fed concludes its year-end rate cuts, but whether it can continue next year remains uncertain

Early this morning, the Federal Reserve announced its final interest rate decision of the year, lowering the benchmark interest rate by 25 basis points to 3.50%-3.75%, marking the third consecutive rate cut, in line with market expectations. This brings the total rate cuts this year to 75 basis points. The subsequent FOMC statement showed that the Fed's interest rate decision was rejected by all three votes for the first time since 2019, exposing the biggest division among policymakers in six years, suggesting a slower pace of action next year and a possible inaction in the near future. US interest rate futures indicate a 78% probability that the Fed will pause rate cuts at its January meeting, compared to 70% before the FOMC decision.

The latest CME FedWatch tool shows that the probability of the Federal Reserve cutting interest rates by 25 basis points in January is 22.1%, while the probability of keeping rates unchanged is 77.9%. By March, the probability of a cumulative 25 basis point rate cut is 40.7%, the probability of keeping rates unchanged is 52%, and the probability of a cumulative 50 basis point rate cut is 7.4%. Data from the forecasting market Polymarket shows that the market is betting on the Fed's interest rate decision in January. After the decision was announced, the market's expectation of keeping rates unchanged in January rose to 80%, while the probability of betting on a 25 basis point rate cut fell to 19%. Following the announcement of this interest rate decision, major global asset markets reacted differently. US stocks hit intraday highs, but near the end of Powell's press conference, the S&P 500's gains narrowed from 1.2% to 0.7%. The two-year US Treasury yield fell 7.5 basis points intraday, and spot gold rose 0.6%, hitting a new daily high and approaching $4239. The US dollar recorded its worst performance in nearly three months. The US dollar index closed down 0.4%, its biggest drop since September 16. Bitcoin briefly surged to a new daily high of $94,500, but then fluctuated significantly and fell back, briefly dipping below $90,000. The market had already anticipated a 25 basis point rate cut at the Fed's final interest rate decision of the year. However, the subsequent FOMC statement and dot plot revealed growing divisions within the Fed, causing some concern about the Fed's future policy path and raising doubts about whether further rate cuts would be possible next year. II. The FOMC statement highlighted increasing divisions, and the dot plot was more dovish than expected. The Fed's FOMC statement announced that it would begin purchasing Treasury bills on December 12th, and would purchase $40 billion in Treasury bills over the next 30 days. The FOMC statement also announced that it would conduct standing overnight repurchase agreement operations at a rate of 3.75% and standing overnight reverse repurchase agreement operations at an operating rate of 3.50%, setting a daily limit of $160 billion for each counterparty. It will increase its securities holdings in the System Open Markets account by purchasing Treasury bills and, if necessary, other U.S. Treasury securities with a remaining maturity of no more than three years to maintain adequate levels of reserves. The statement noted that inflation has risen since the beginning of the year and remains at a relatively high level. Uncertainty about the economic outlook remains high, and downside risks to employment have increased in recent months. In assessing whether and when further adjustments to the target range for the federal funds rate are needed, the Committee will carefully evaluate the latest data, the evolving economic outlook, and the balance of risks. The dot plot released by the Federal Reserve after the meeting showed that, among the 19 officials, 7 believed that interest rates should not be cut in 2026, 4 believed that there should be a cumulative rate cut of 25 basis points, 4 believed that there should be a cumulative rate cut of 50 basis points, 2 believed that there should be a cumulative rate cut of 75 basis points, 1 believed that there should be a cumulative rate cut of 100 basis points, and 1 believed that there should be a cumulative rate cut of 150 basis points. The FOMC statement shows that this Fed rate decision was the first time since 2019 that it was rejected by all three voters. **Fed Governor Stephen I. Miran** continued to advocate for a 50-basis-point reduction in the target range for the federal funds rate at this meeting; **Kansas City Fed President Jeffrey Schmid** and **Chicago Fed President Austan Goolsbee** advocated for maintaining the target range for the federal funds rate unchanged; all other FOMC voting members voted in favor of the Fed's rate decision. This Federal Reserve interest rate decision highlighted the biggest internal division among policymakers in six years, hinting at a slower pace of action next year, further fueling market concerns about the Fed's future policy path. Third, Powell's press conference was more dovish than expected, aiming to "stay on duty until the very end." Fed Chairman Powell subsequently explained the rate cut decision and the economic situation at a press conference and answered reporters' questions. Powell stated that current data indicates the outlook remains unchanged. The labor market appears to be gradually cooling, inflation remains high, consumer spending remains robust, and data shows the economy is expanding at a moderate pace. Most long-term inflation expectations are consistent with the 2% target. If tariffs are removed, the inflation rate will be at the lower end of the 2% range. The Fed is committed to achieving its 2% inflation target, but the labor market also faces pressure. Powell stated that the upward revision of the 2026 growth forecast partly reflects the end of the government shutdown; a large amount of data will be available between now and the January FOMC meeting; the baseline expectation is solid economic growth next year. Powell believes that **currently, a rate hike is not anyone's baseline expectation; the current policy divergence lies in whether to maintain the current interest rate or cut it.** Powell also stated that there is no risk-free path for policy, and the balance of risks has shifted in recent months. The Fed has been adjusting towards the neutral interest rate, and is currently at the high end of the neutral rate range; no decision has yet been made regarding January. He emphasized that **the Fed will make decisions at each meeting; there is no predetermined path for monetary policy;** the scale of Treasury bond purchases is likely to remain high in the coming months. During the Q&A session, Powell stated that he wants to hand over the job to the next chairman when the economy is in a very good state, hoping that inflation is under control and falls back to 2%, and that the labor market remains strong. Regarding his personal future, Powell stated that he has no new plans after his term as Fed chairman ends. In the final months of his term as Federal Reserve Chairman, Powell attempted a smooth transition. With Trump poised to announce his successor, the influence of the "shadow" Fed chairman has grown, making Powell's remarks at this press conference both expected and a sign of desperation. [Link to article: https://x.com/doganeth_en/article/1998382429170483453/media/1998140802132766720] IV. How to Interpret the Fed's Decision Regarding the Fed's final interest rate decision of the year, Nick Timiraos, a Wall Street Journal reporter and "Fed mouthpiece," wrote that Fed officials cut rates for the third consecutive meeting, but there are unusual divisions within the Fed regarding whether inflation or the job market is a greater concern, thus officials hinted at a low willingness to continue cutting rates. Recent public comments from Federal Reserve officials suggest a deep division within the committee, to the point that the final decision may depend on how Fed Chairman Jerome Powell chooses to proceed. Powell's term expires next May, meaning he will only chair the next three interest rate-setting meetings. Firm price pressures coupled with a cooling labor market present the Fed with an unpleasant trade-off, a situation unseen for decades. During the so-called "stagflation" of the 1970s, when officials faced a similar dilemma, the Fed's stop-and-go approach allowed high inflation to fester. State Street analyst Marvin Loh stated that the Fed cut rates as expected, but this can only be interpreted as a hawkish move because officials did not change their forecasts for the next two years. He noted, "This will allow interest rates to slide very slowly toward the theoretical 3% neutral rate. Given the significant upward revision to GDP in the Summary of Economic Projections (SEP), the inclusion of the word 'extent' in the statement to describe the additional policy adjustment suggests that some members of the Federal Open Market Committee are considering the practical necessity of achieving the current 3% long-term 'dot plot' target." Charles Schwab analyst Richard Flynn stated that by taking preemptive action, the Fed is signaling caution in the face of rising downside risks, especially given sluggish global growth and persistent policy uncertainty. For investors, this is a measured adjustment, not a dramatic shift. While this rate cut may provide short-term support for risk assets and potentially drive a seasonal 'Santa Claus rally,' volatility is likely to remain high as markets need to assess its impact on future policy and the broader economic outlook. Goldman Sachs analyst Kay Haigh stated that the Federal Reserve has reached the end of its "precautionary rate cut" phase. She believes, "The next responsibility lies in labor market data weakening further to justify additional near-term easing. The 'hard dissent' from voting members and the 'soft dissent' in the 'dot plot' highlight the Fed's hawkish camp, and the reintroduction of 'degree and timing' language regarding future policy decisions in the statement is likely intended to appease them. While this leaves room for future rate cuts, the weakness in the labor market must reach a high threshold." Informa Global Markets commented on Powell's latest remarks: The so-called "hawkish rate cut" is nothing more than that. Powell pointed out the tension between the Fed's dual mandate but also acknowledged little change since the last meeting. His statements were generally similar to previous ones. The most memorable line from the press conference was: "The economy right now doesn't look like an overheated economy that's triggering labor-driven inflation." Chris Grisanti, Chief Market Strategist at MAI Capital Management in New York, commented on the Fed's interest rate decision: "The initial reaction was no surprise; rates were cut as expected. But when you look ahead, you see a lot of uncertainty. As we move from today's rate cuts to 2026, the tailwind effect of those cuts will be less reliable. That could become a problem. Further, with the Fed's revised wording emphasizing the uncertainty surrounding the 'magnitude and timing' of future rate cuts, the Fed is essentially sending a signal to the market: don't take rate cuts for granted. In my view, this means we'll only see more rate cuts if the economy slows significantly. As a stock investor, I hope there won't be any rate cuts in 2026, because that would mean the economy is weakening. I'd rather have a robust economy than more rate cuts." Analyst Anna Wong stated, “My assessment is that the overall tone of the policy statement and updated projections leans dovish—although there are some underlying hawkish messages. On the dovish side, the Committee significantly raised its growth trajectory while lowering its inflation outlook and keeping the ‘dot plot’ unchanged. The FOMC also announced the commencement of reserve management purchases. On the other hand, one signal in the policy statement suggests that the Committee is inclined to a prolonged pause in rate cuts.” She continued, “Although the ‘dot plot’ shows only one rate cut in 2026—while the market expects two—our view is that the Fed will eventually cut rates by 100 basis points next year. This is because we expect weak job growth and currently see no clear signs of a renewed inflation in the first half of 2026.” Michael, Chief Investment Officer of Angeles Investments Rosen stated, "This rate cut was expected, so there were no surprises. The 9-3 vote for a 25-basis-point cut was also anticipated, with Schmid and Goolsby supporting no cut, while Milan wanted a 50-basis-point cut. Again, no surprises. The statement emphasized the weakness in the labor market, the main reason for the 25-basis-point cut. This detail was picked up by the market, suggesting the Fed may continue to ease policy, although the expectation of only one 25-basis-point cut next year remains unchanged." Furthermore, for Trump, a 25-basis-point cut wasn't enough. On Wednesday afternoon, at a White House event, Trump stated that a 25-basis-point cut was "a rather small number that could have been doubled—at least doubled." He also reiterated his long-standing criticism of Fed Chairman Powell. V. Where will the market go from here? Following the Fed's latest decision, what will be the future of major asset markets, including cryptocurrencies? Let's take a look at the main analyses and interpretations. 1. CryptoQuant analyst Axel posted on social media that Bitcoin has resumed its bullish structure after retracing to $80,000. This move comes against the backdrop of the market almost fully pricing in the Fed's third consecutive rate cut, which will improve financial conditions and open a window for further asset gains, provided Powell does not release any hawkish surprises. Since retracing to the $80,000 range from its October peak, the price has shown a steady upward trend over the past 14 days. 2. Fidelity Digital Assets, a subsidiary of Fidelity, stated that Bitcoin has regained upward momentum with a shift in macroeconomic expectations, and is currently fluctuating in the $90,000 range. Trading data shows that approximately 430,000 Bitcoins were bought around $85,500 (down about 32% from its all-time high), indicating that this price level will be a significant support level. Market volatility has now stabilized, and Fidelity will closely monitor the market's reaction to today's Federal Reserve meeting. Matrixport released a chart analysis stating that Bitcoin's implied volatility continues to decline, consequently reducing the likelihood of a significant upward breakout by the end of the year. Today's Federal Open Market Committee meeting is the last major catalyst, but once the meeting concludes, volatility is likely to continue its downward trend until the holidays. Without new Bitcoin ETF inflows to drive directional momentum, the market may return to range-bound trading. This outcome is typically associated with further declines in volatility. In fact, this adjustment process is already underway, with implied volatility continuing to fall, gradually reducing the market's likelihood of an upward surprise at the end of December. 4. XWIN Research Japan research shows that institutional investors are actively adjusting their positions. On-chain data shows that BTC balances on major exchanges are declining, while USDT and USDC reserves are rising, indicating that institutions are reducing risk exposure and accumulating stablecoins. The research points out that this pattern is similar to that of August-October 2025: funding rates surged before the FOMC meeting, then plummeted after the announcement, while Bitcoin prices peaked and fell back. The current stagnation of CME futures open interest and stable spot holdings by large investors further corroborate that professional funds are preparing for volatility. Analysts advise investors not to blindly chase pre-meeting rebounds, but to manage risks in advance, as market volatility around the FOMC typically increases dramatically. 5. Binance founder Changpeng Zhao stated at the Bitcoin Middle East Conference that the "four-year cycle" for Bitcoin may no longer apply, and mentioned that with increased institutional participation, the market may enter a "supercycle." The so-called supercycle refers to the influence of institutional and regulatory capital flows on the market being stronger than the price cycle centered on traditional halving events. Zhao Changpeng also stated that discussions regarding national-level Bitcoin reserves may spread. He suggested that if the US engages in discussions about strategic reserves, other countries may follow suit. 6. Cathie Wood, founder of ARK Invest, stated that Bitcoin's four-year cycle will be broken, and we may have already seen the lowest point of this cycle. 7. Yi Lihua, founder of Liquid Capital, wrote that for long-term spot investment, a few hundred dollars makes no difference. The reason ETH is currently significantly undervalued is, from a macro perspective, due to expectations of interest rate cuts and monetary easing, and continuous crypto-friendly policies. From an industry perspective, stablecoins have long-term growth potential, and the trend of financial blockchain integration. ETH's fundamentals are completely different now, and these factors are also the reasons for heavily investing in WLFI/USD1. After going all-in, the rest is up to time; there will be no more short-term fluctuations. Finally, let me reiterate that spot market volatility is high enough that you should avoid trading futures. Firstly, most people lack the technical and psychological expertise for it. Secondly, futures trading is a nine-out-of-ten-win game; it will drain your energy. You'd be better off developing off-exchange business.