On the eve of the interest rate meeting, hawkish interest rate cuts were overwhelming, and the liquidity gate and the crypto market were tested at the end of the year

Written by ChandlerZ, Foresight News

In the early morning of December 11, Beijing time, the Federal Reserve will announce its last interest rate decision of the year. The market has almost reached a consensus that the federal funds target range is likely to be lowered by another 25 basis points, from 3.75%–4.00% to 3.50%–3.75%, completing the third rate cut since September.

But rather than waiting for a rate cut, everyone is more concerned about whether this will be a hawkish rate cut in the standard sense.

Behind this subtle sentiment is a highly torn FOMC. Some members are worried that the job market has shown signs of weakness in an environment where the government is shut down and enterprises are actively reducing employment, and continuing to keep interest rates high will only amplify the risk of recession; Another group of members is eyeing core inflation, which is still above the 2% target, believing that current interest rates are restrictive enough and that premature shift to easing will only lay greater price risks for the future.

To make matters trickier, the debate took place in a data vacuum. The U.S. government shutdown has delayed the release of some key macro data, and the FOMC can only make decisions with incomplete information, which also makes policy communication at this meeting significantly more difficult than usual.

A split FOMC, a reprint of hawkish rate cuts

If this interest rate meeting is seen as a big drama, then the hawkish interest rate cut in October is the synopsis of the plot. At that time, the Fed lowered the target range of the federal funds rate by 25 basis points on the one hand, and at the same time announced that it would officially end the three-year quantitative tightening process from December 1 and stop further compressing the balance sheet. From an operational point of view alone, this is a clearly dovish combination, and the interest rate cut superimposed on the stop of balance sheet reduction should logically form a continuous support for risk assets.

But at that time, Powell repeatedly poured cold water on the press conference. Powell has repeatedly emphasized that it is by no means a certainty whether to cut interest rates again in December, and rarely publicly mentions strong disagreements within the committee. As a result, interest rates did fall, and the Fed gave a marginal easing of monetary conditions, but the dollar and US Treasury yields continued to rise, and the stock market and crypto assets quickly gave up gains after a brief rally.

New York Fed President Williams made it clear in his speech at the end of November that there is still room for further adjustment of the target range of the federal funds rate in the short term, which is seen as a public endorsement of this rate cut; In contrast, many officials, including the Boston Fed and the Kansas City Fed, have reminded more than once that inflation is still above the 2% target and that service prices are clearly sticky, and there is no strong need to continue easing in this environment. In their view, even if it is cut again this time, it is more like a fine-tuning of the previous policy rather than the starting point of a new round of easing cycle.

The forecasts of external agencies also reflect this entanglement. Goldman Sachs and other investment banks generally expect that this dot plot will slightly raise the path of interest rate cuts after 2026, that is, while acknowledging the current pressure on economic growth and employment, they will still deliberately send a signal to the market not to interpret this interest rate cut as a return to the continuous easing model.

Three paths, how Bitcoin is priced in the macro gap

Standing on the eve of the interest rate meeting, Bitcoin’s position is quite delicate. Since the rise in October, the price has experienced a round of retracement of about 30% and is currently fluctuating above $90,000. At the same time, the net inflow of ETFs is significantly slower than the peak at the beginning of the year, and some institutions have begun to lower their medium and long-term target prices, and concerns about high risk-free interest rates are slowly seeping into the pricing model. The signal given by this interest rate meeting is likely to push the market into three completely different trajectories.

First, the benchmark scenario that is most likely to occur: interest rates will fall by another 25 basis points as expected, but the dot plot is a slightly conservative picture of the number of rate cuts in 2026 and beyond, and Powell continued to emphasize at the press conference that there is no preset path for continuous interest rate cuts, everything depends on the data. Under this combination, the market still has short-term reasons to pay for the interest rate cut itself, and Bitcoin does not rule out trying to attack the resistance range near the previous high that night, but as the long-end yield on U.S. Treasury bonds stabilizes or even rebounds slightly, real interest rates rise, and the sustainability of sentiment repair will be tested, and the price is more likely to repeatedly tug of war at a high level, rather than a wave of trend upwards.

Second, there is a relatively dovish but low probability of surprises: in addition to interest rate cuts, the dot plot significantly lowered the medium-term interest rate center, suggesting that there is still room for more than two rate cuts in 2026. This situation is essentially another cut in interest rates + a U-turn in liquidity expectations, which will be substantially positive for all high-duration assets.

For the crypto market, as long as Bitcoin can stabilize its chips around 90,000, it has the opportunity to re-challenge the psychological threshold of 100,000, while on-chain assets represented by ETH and mainstream DeFi and L2 protocols may run out of obvious excess returns driven by the return of on-chain liquidity.

Third, it is an unexpected situation that will significantly suppress market risk appetite: the Fed chooses to stay on hold, or although it cuts interest rates, it will significantly raise long-term interest rates through the dot plot, significantly reduce the number of future interest rate cuts, and release to the market that October and December are only insurance fine-tuning, and high interest rates are still the main theme signal. Under this combination, the US dollar and US Treasury yields are likely to strengthen, and all cash-free assets that rely on valuation support will be under pressure.

In the context that Bitcoin has experienced a round of significant correction, the marginal slowdown of ETF funds, and the beginning of some institutions to adjust their expectations, coupled with the negative impact of the macro narrative, it is technically not ruled out seeking new support downwards. The high-leveraged, pure story sector of altcoins is more likely to become a priority target for liquidation in this environment.

For crypto market participants, this interest rate night is more like a macro-level options expiration date.

Both in the US stock market and in the history of Bitcoin, most FOMC interest rate nights have shown a similar rhythm. The hour after the announcement of the resolution is the battlefield where emotions, algorithms and liquidity are most concentrated, and the candlesticks are pulled violently, but the direction signals are not stable; The real trend often doesn’t become apparent over the next 12–24 hours until the press conference is over and investors have read the dot plot and economic forecasts.

Interest rate decisions determine the current rhythm, and the direction of liquidity is likely to determine the second half of this cycle.