Brothers, the market's expectations for the Federal Reserve have subtly changed recently, and the rate cuts in 2026 may be significantly reduced. Currently, the interest rate futures market indicates that the room for rate cuts for the entire next year may be less than 75 basis points, with some of it possibly occurring in the first half of Powell's term. This means that the new chairperson in the second half of 2026 may have less than 50 basis points of rate cut ammunition.
Although inflation has fallen from its peak, most institutions predict it may still remain around 3% by 2026, far above the Federal Reserve's target of 2%. Trump's tariff policies and risks in the Middle East supply chain may continue to push prices up, and the new chairperson's primary task upon taking office may be to prevent inflation, rather than engage in reckless monetary easing.
Trump hopes that Hassett will implement loose policies, but there are significant divisions within the Federal Reserve. In the October meeting, there was one vote supporting a 50 basis point rate cut and one vote supporting maintaining the interest rate. Powell recently emphasized that the Federal Reserve will maintain its independence, suggesting that political interference is limited.
If the rate cuts continue in December this year and the first half of next year, the federal funds rate may drop to 3.25%-3.50%, and the real interest rate is close to zero. In this environment, the urgency and room for further rate cuts will be reduced.
The market previously bet that Trump’s confidant Hassett would strongly cut rates after taking office, driving up risk assets. However, if the rate cut in 2026 is only 50-75 basis points, the narrative of liquidity frenzy that the crypto market relies on will be greatly diminished.
The recent drop in Bitcoin below 90,000 is partly due to cooling expectations for rate cuts. If the speed of liquidity injection slows next year, overvalued altcoins and leveraged long positions may face more severe liquidations.
Some analysts believe that in 2026, the crypto market will focus more on real applications rather than mere liquidity speculation. For example, Klarna’s issuance of stablecoins and the compliance of DATs may allow fundamentally strong projects to emerge.
It is advisable to pay attention to whether the Federal Reserve implements a rate cut in December. If it materializes, Bitcoin may rebound to the range of 95,000-100,000, but it is recommended to reduce positions at highs rather than chase the rise. If Powell cuts rates by another 50 basis points during his term, the market may briefly spike, but caution is needed for a pullback after the favorable news is realized. Maintain caution until the new chairman's policies are clear, with a focus on allocating to Bitcoin, Ethereum, and other resilient assets while avoiding overvalued altcoins.
The Federal Reserve's room for rate cuts is being compressed by inflation and political maneuvering. The past script where liquidity injection led to explosive growth in the crypto market may no longer apply. In 2026, the key to survival is to be wary of liquidity expectation differences and stay away from pure concept speculation.
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