The Federal Reserve's third rate cut in 2025 has lowered the federal funds rate to between 3.5% and 3.75%. However, one more concern has increased: worries about a recession.
Analysts warn that the current trends reveal weaknesses in the U.S. economy. Many expect increased volatility in the markets going forward.
Warning signals after Fed rate cut
The Federal Reserve lowered the benchmark interest rate again yesterday. This is the third cut following September and October. As a result of this decision, the federal funds rate has reached its lowest level since November 2022.
According to the Fed's statement, overall economic activity in the U.S. continues to grow at a moderate pace. However, policymakers acknowledged distinct signs of economic cooling, including hiring slowdowns and a slight rise in unemployment rates.
"Inflation has risen more than earlier this year and remains somewhat high. The committee aims for maximum employment and 2% inflation in the long term. Uncertainty in economic forecasts remains high. The committee is aware of the risks on both sides of its dual mandate, and it has determined that the downside risks to employment have increased in recent months." โ From the Fed's press release.
Rate cuts are generally welcomed in the stock and cryptocurrency markets because they lower borrowing costs. However, not everyone is pleased. Some market observers interpret this action as a warning signal.
Economist Claudia Sahm also warned that if investors expect further rate cuts, they must also be prepared for the possibility of a recession. The Federal Open Market Committee (FOMC) dot plot suggests that there will only be one additional cut in 2026. Seven out of 19 members expect no further rate cuts by 2026.
"If [Jerome] Powell's Fed implements more rate cuts... we are probably not in a good economic situation. Be careful what you wish for," in an interview with Fortune.
Along with rate cuts, the Fed announced that it would purchase $40 billion worth of U.S. Treasury bonds over the next 30 days. Henrik Jeburg, chief macroeconomist at Swissblock, says this move shows the fundamental vulnerabilities of the U.S. economy.
"The fact is... the economy is not healthy. The economy is in a downturn, which is putting pressure on liquidity. This is a signal that the Fed is sensing. However, the Fed does not understand that consumers have already been significantly impacted. As a result, a recession will occur," he added.
Jeburg stated that his economic model signaled a slowdown starting in November 2024. He reiterates that the U.S. is now heading into a recession.
Surge in layoffs... collapse of small businesses, signals of recession
In the meantime, indicators signaling a recession are appearing one after another. In particular, labor market stress is surging. As of December 1, 2025, U.S. companies have announced approximately 1.2 million layoffs.
"This figure is the highest since the pandemic and the highest since the Great Recession began." โ As reported by FactPost.
An analyst emphasized that when annual layoffs exceed 1 million, recessions are often either approaching or already in progress.
'COVISH LETTER' reported that small businesses in the U.S. are facing increasing financial pressure this week. So far this year, 2,221 companies have filed for bankruptcy under Subchapter V. The number of bankruptcies has increased by 83% over the past five years.
This surge occurred even as the debt ceiling was lowered from $7.5 million to $3 million. Nevertheless, bankruptcy filings have accelerated.
"The backdrop to the increase in bankruptcies includes high borrowing costs, cautious consumer spending, and overall economic uncertainty. This has led to a deterioration in profitability for small businesses. U.S. small business bankruptcies are surging as if a recession has begun." โ Commentary from COVISH LETTER.
With signals indicating a recession lighting up in various places, the U.S. economy stands on a crucial test. Rate cuts may provide short-term relief, but deeper economic weaknesses could put pressure on risk assets.
The key question for cryptocurrency investors is whether digital assets like Bitcoin will act as safe havens or show weakness depending on overall market risk aversion movements.
