Will the Fed Cut Rates in December? Crypto Weakens as Odds Shrink

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Bitcoin has dropped to its lowest level in six months and the timing is rough.

The drop comes as investors lose confidence that the Federal Reserve will cut interest rates at its next meeting. And this is weighing heavily on both stocks and crypto markets. 

Investors are now getting ready for a busy week of economic data after the government has reopened after a record 43-day shutdown.

Fed Rate Cut Odds Drop 

The Fed cut interest rates by 25 basis points in the last meeting. After the Fed cut rates in September, big institutions like J.P. Morgan had predicted two more rate cuts in 2025 and one more in 2026.

However, the market expectation of further cuts in December has shrunk significantly. According to the CME Fedwatch tool, the odds of a rate cut have now dropped below 45%.

Fed Officials Cautious Over Inflation

More officials are warning that inflation is still too high and that they may prefer to keep rates where they are. 

Kansas City Fed President Jeff Schmid recently said that inflation remains a concern and argued that keeping rates steady might be the better choice heading into December. He has also noted that the issues in the job market are likely long-term, driven by technology and immigration changes and believes that rate cuts cannot fix this.

“Rate cuts could have longer-lasting effects on inflation as our commitment to our 2% objective increasingly comes into question. This was my rationale for dissenting, against the rate cut at the last meeting and one that continues to guide my thoughts as I head into the meeting in December” he said. 

Dallas Fed President Lorie Logan has also said that she would not support another interest rate cut in December. She said that she would need “convincing evidence” of faster progress on inflation or a “more than the gradual cooling” in the labor market before supporting more cuts.

These remarks highlight how divided the Fed is right now. 

Fed Meets Banks as Liquidity Tightens

Amidst signs that the market liquidity is tightening, New York Fed President John Williams recently met with major Wall Street banks this week to discuss the central bank’s standing repo facility (SRF).

Williams gathered the Fed’s primary dealers to review the purpose of the SRF as a monetary-policy tool and to gather feedback on how to keep it effective for controlling interest rates.

The SRF is designed to let eligible financial firms quickly turn their Treasuries into cash when market liquidity gets tight. Even though it was created in 2021, it was mostly unused until recently. Its pickup in late October caught attention, but the activity was still lower than many expected.

Some Fed officials were concerned as to why firms chose to borrow in markets at higher rates than those offered by the Fed.

Fed Shake-Up Ahead?

Looking ahead, the Fed itself may see big changes next year. Atlanta Fed President Raphael Bostic is stepping down early next year, which gives President Trump another opportunity to influence the committee. Powell’s term ends in May and a Supreme Court ruling that could allow the president to remove Fed Governor Lisa Cook could add another change.

However, several regional Fed presidents will rotate onto the committee next year and many of them are hawkish.

For now, the uncertainty remains and investors are watching closely to see whether the Fed will cut or hold in December.

Impact On Crypto Markets

Rate cuts are normally bullish for risk assets like crypto because lower interest rates usually mean more liquidity and higher risk appetite. However, if there is no rate cut in the next meeting, it could  trigger a sharp pullback in stocks and crypto, adding pressure to already fragile markets.