The policy direction of the Federal Reserve in 2026 is becoming an unavoidable core issue for the entire market.

Let's first look at the current situation. Interest rates have been lowered to the 3.5%–3.75% range. The numbers seem to have improved, but in reality, they are only a slight retreat from high levels over a decade ago. The overall policy tone remains tight. Liquidity is far from being considered loose; at most, it is no longer as extremely tight as before.

The real root cause of frequent market volatility still lies in the uncertainty surrounding the policy path in 2026.

From the perspective of internal Fed attitudes, disagreements are quite evident. Last year's dot plot showed that opinions on whether to continue cutting rates and by how much were almost evenly dispersed among committee members. This internal lack of unity is easily amplified and misunderstood by the market, resulting in repeated price fluctuations.

Expectations in the interest rate market also appear cautious. According to futures market pricing, the probability of rate cuts in January is only about 20%, rising to just over 40% by March. This indicates that traders lack confidence in the Fed's quick shift to an easing policy.

The underlying contradiction has always been present: the ongoing tug-of-war between employment and inflation.

On one hand, employment data is beginning to show signs of weakness, especially with rising employment pressures on low- and middle-income groups, and consumer spending is noticeably suppressed. On the other hand, although inflation has retreated, it still remains above the Fed's target level. Coupled with new tariff policies and cost factors, inflation still has room to rebound.

It is precisely because of this dilemma that Powell has recently emphasized the importance of "risk management" frequently. First, to avoid the risk of the economy hard landing; second, to refrain from releasing too much liquidity at once, for fear of triggering a new round of inflation.

For crypto market participants, one detail cannot be ignored: expectations often have more influence than the actual results themselves.

If rate cut expectations have already been priced in by the market in advance, then when the policy is actually implemented, it may instead become a window for cashing out. What truly drives big market moves is the market’s re-adjustment of expectations regarding the future liquidity environment.

To summarize the logic simply: if employment continues to weaken and inflation remains under control, the probability of one or two rate cuts in 2026 is relatively high, which is usually positive for risk assets like Bitcoin; conversely, if inflation re-accelerates, the Fed will be forced to step on the brakes, and market pressure will quickly return.

In addition, several structural variables should also be monitored. Possible rate hikes in Japan could impact yen arbitrage trading, and the policy inclination of the new Fed chair after Powell’s departure also carries uncertainties.

These factors overlap and interact, making 2026’s market volatility inevitable. Rather than blindly following the narrative of "rate cut expectations," it’s better to focus on closely observing data, officials’ statements, and subtle changes.

The market’s pricing logic is undergoing a shift—from a simple belief in a single positive narrative to a more nuanced pricing of policy disagreements and different paths. This shift means that whoever can more accurately understand policy uncertainties will be able to find opportunities amid the volatility.