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Third Consecutive 25-basis-point Interest Rate Cut and Bitcoin’s Path in 2026
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2025-12-11 | 10m
On December 10, 2025, the Federal Reserve delivered its third consecutive 25-basis-point interest rate cut, bringing the target range for the federal funds rate to 3.50% - 3.75%. While this move was widely anticipated by markets, the central bank's forward guidance, encapsulated in its updated "dot plot," sent a decidedly cautious message. The median projection now indicates only one additional rate cut in 2026, aiming for a year-end rate of 3.4%, followed by a single cut in 2027 to 3.1%.
This shallow path for future easing underscores what Chair Jerome Powell described as a "very challenging situation", where risks to both inflation and employment are tilted to the upside. The immediate reaction in the cryptocurrency market was volatile, with Bitcoin briefly surging past $94,000 before retracing those gains. This price action perfectly encapsulates the current crossroads: the market must reconcile the reality of a slowing but persistent pace of monetary easing with Bitcoin's evolving role as a macro asset. This analysis will deconstruct the Fed's new "data-dependent" paradigm, explore its transmission mechanisms to digital asset markets, and provide a framework for forecasting Bitcoin's price trajectory in 2026.
The Fed's Dilemma: A Divided Committee and the End of "Preventive" Easing
The December 2025 Federal Open Market Committee (FOMC) meeting revealed a central bank at a critical inflection point, navigating deep internal divisions. The 9-3 vote for the rate cut, which is the most dissented in a single meeting since September 2019, highlighted profound disagreements on the pace of policy. Notably, one member, Stephen Miran, advocated for a more aggressive 50-basis-point cut, while Austan Goolsbee and Jeffrey Schmid preferred no change at all. This split reflects the core dilemma: a tug-of-war between lingering inflation concerns and emerging labor market weaknesses.
The Primacy of Labor Market Data Chair Powell's press conference left little doubt that employment data has become the primary driver of recent policy. He explicitly stated that the decision was guided by the observation that "downside risks to employment rose in recent months" and that the labor market is "gradually cooling". He revealed internal Fed analysis suggesting recent non-farm payrolls had been systematically overestimated, with true job gains potentially as low as 80,000-90,000 per month. This significant slowdown in hiring, coupled with an unemployment rate that has "edged up", shifted the balance of risks, justifying a preemptive move to support employment. As Powell framed it, the Fed is now more focused on preventing further labor market deterioration.
The Stubborn Inflation Overshoot and the "One-Time" Tariff Narrative Acting against this easing bias is inflation, which "remains somewhat elevated". The Fed's own projections see Personal Consumption Expenditures (PCE) inflation at 2.9% for 2025, only gradually declining to 2.0% by 2028. However, Powell offered a specific narrative to contextualize this stickiness. He attributed the bulk of the overshoot to "one-time" price level shocks from import tariffs, stating that without their effect, core inflation would already be near the 2% target. This framing is crucial: it allows the Fed to justify rate cuts
despite high headline inflation by arguing the cause is transitory and that their mandate is to prevent it from becoming persistent.
The 2026 Dot Plot: A Forecast, Not a Promise The dot plot's median projection for just one 2026 rate cut has been interpreted as a hawkish surprise. However, a closer look reveals a committee far from consensus. Analysis of the dots shows that of the 19 FOMC participants, only four see exactly one cut. A significant bloc of four members expects two cuts, while three even foresee rates falling below 3%. Conversely, three members anticipate a rate
hike. This wide dispersion makes the median forecast exceptionally fragile. It signals that the bar for further easing is now very high, dependent on labor market data confirming a continued, material slowdown. As Goldman Sachs analyst Kay Haigh noted, the era of "preventive" cuts is over; future moves will require clear justification from weakening employment figures. Powell himself emphasized this by stating the Fed is "well positioned to wait and see how the economy evolves".
Transmission to Crypto
The traditional link between interest rates and Bitcoin: lower rates boost risk assets, has become more nuanced. The market's "buy the rumor, sell the news" reaction to the December cut indicates that the
path of policy and associated liquidity conditions are now more important than discrete actions themselves.
The "Stealth Easing" of Balance Sheet Policy A critical but underappreciated aspect of the December meeting was the decision to resume purchases of Treasury securities, starting with a $40 billion operation. This move, described by some strategists as "stealth easing," is aimed at maintaining an "ample supply of reserves". For financial markets, this direct injection of liquidity can be as impactful as a rate cut. It eases funding conditions in the short-term lending markets that large traders and institutional desks rely on. Improved liquidity reduces execution costs and volatility for large Bitcoin trades, making the asset more accessible and stable for institutional portfolios. This suggests that even with a paused rate-cut cycle, the Fed can still support market functioning through its balance sheet tools.
The "Data-Dependent" Sentiment Overhang
The Fed's new, explicit data-dependency creates a sentiment overhang for speculative assets like Bitcoin. Every subsequent employment and inflation report becomes a high-stakes event that can abruptly shift market expectations for the March, June, or later meetings. This fosters a trading environment prone to knee-jerk reactions and potentially limits sustained, trend-following rallies in the near term. The market will be held hostage to a monthly data cycle, with Bitcoin's price volatility likely to spike around releases like the Non-Farm Payrolls.
The Evolving Bitcoin-Macro Correlation Bitcoin's brief spike and swift reversal following Powell's remarks demonstrate its maturation and deepening integration with traditional finance. The initial spike likely reflected algorithmic trading reacting to the dovish elements (labor market focus, ruling out hikes). The reversal, however, signified a more deliberate digestion of the restrained forward guidance. Bitcoin is no longer a purely speculative asset disconnected from macro fundamentals. It now reacts in real-time to shifts in the expected path of global dollar liquidity and risk appetite. Its correlation with tech stocks (NASDAQ) and gold may become more pronounced in this environment, as all three asset classes collectively assess the trade-off between growth risks (supportive) and sticky inflation (restrictive).
Bitcoin Price Forecast for 2026
Forecasting Bitcoin's price in 2026 requires synthesizing the constrained Fed outlook with Bitcoin's unique internal dynamics, including the post-ETF institutional landscape and the upcoming block reward halving.
Near-Term Catalysts and Resistance (Q1 - Q2 2026) In the immediate aftermath of the December meeting, Bitcoin faces conflicting forces. The bullish case rests on the continuation of the easing cycle (however slow), the supportive balance sheet policy, and the fact that Powell explicitly took rate hikes off the table. These factors provide a floor under risk assets. The bearish counterpoint is the unexpectedly shallow dot plot and the high bar for future cuts. In the short term, this tension is likely to manifest as range-bound consolidation. Key technical resistance will be found in the $94,000 - $100,000 zone (the recent local high and a major psychological level). A decisive and sustained break above $100,000 would require a catalyst such as softer-than-expected inflation data or a clear spike in unemployment, which would revive expectations for a more aggressive Fed in mid-2026. Strong support is anticipated between $85,000 and $88,000, a region that has held during previous corrections and aligns with the 50-week moving average.
The Halving and Institutional Adoption as Structural Tailwinds
Beyond the Fed, Bitcoin's intrinsic schedule provides a powerful structural tailwind. The next block reward halving, expected in April or May 2026, will cut the daily new supply of Bitcoin in half. Historically, halving events have catalyzed major bull markets 6-12 months afterward, as the supply shock interacts with steady or growing demand. This time, demand is institutionally anchored via U.S. spot Bitcoin ETFs. Even with a cautious Fed, these regulated vehicles represent a persistent, non-discretionary flow of capital into the asset. The "lower-for-longer" rate trajectory, compared to the 2023-2024 period, still makes holding a non-yielding but appreciating asset like Bitcoin more attractive than during a hiking cycle.
Base, Bull, and Bear Scenarios for 2026
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Base Scenario (Probability: 60%): The "Grind Higher" Path. The U.S. economy experiences a mild slowdown, with unemployment gradually rising to 4.5% and inflation slowly descending. The Fed delivers its single projected cut in Q3 2026. This "soft landing" backdrop, combined with the post-halving supply dynamic and steady ETF inflows, allows Bitcoin to break above its all-time high. The price consolidates in a new range, ending 2026 between $115,000 and $135,000. Volatility remains high but driven more by crypto-specific catalysts (e.g., regulatory news, ETF inflows) than macro shocks.
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Bull Scenario (Probability: 25%): The "Dovish Pivot" Acceleration. Labor market deterioration accelerates faster than expected, with unemployment breaching 4.5% by mid-2026. Simultaneously, inflation falls more rapidly, validating Powell's "transitory tariff" view. This forces the Fed to abandon its cautious dot plot and deliver two or even three cuts. A sudden expansion of liquidity expectations, coupled with peak post-halving supply scarcity and FOMO from traditional finance, could ignite a parabolic move. In this scenario, Bitcoin could challenge the $150,000 - $180,000 range by year-end.
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Bear Scenario (Probability: 15%): The "Stagflationary Stall." Inflation proves sticky and re-accelerates, while the labor market still weakens. This stagflationary mix is the Fed's worst nightmare, paralyzing policy. The Fed pauses indefinitely, and "higher-for-longer" rhetoric returns, potentially even reviving hike fears. Risk assets sell off broadly. Bitcoin, despite its halving, would not be immune to a severe liquidity contraction. It would test major support levels, potentially revisiting the $70,000 - $75,000 region in a prolonged corrective phase.
Conclusion
The December 2025 Fed meeting marked a definitive shift from an automatic easing cycle to a hesitant, data-contingent one. For Bitcoin, the implication is clear: the easy macro tailwinds of late 2025 are subsiding. Its performance in 2026 will be a rigorous test of its maturity. It must now balance between its newfound sensitivity to traditional macro liquidity cues and its powerful, scheduled supply shock and growing institutional bedrock.
The path forward will be less about celebrating rate cuts and more about navigating the uncertainty between deteriorating employment data and stubborn inflation prints. Success will depend on Bitcoin's ability to demonstrate its resilience during Fed pauses and its explosiveness when liquidity conditions ultimately turn more favorable. In this new regime, Bitcoin is not just a speculative bet on lower rates, but a complex barometer for the global economy's most challenging trade-off.
References:
Federal Reserve Board. (2025, December 10).
Federal Reserve issues FOMC statement [Press release].
https://www.federalreserve.gov/newsevents/pressreleases/monetary20251210a.htm?item=502a6894-5f88-4228-a237-1d029f754984
Federal Reserve Board. (2025, December 10).
December 10, 2025: FOMC Projections materials, accessible version.
https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20251210.htm
CNBC. (2025, December 10).
Fed meeting recap: Fed's starts stealth easing, Powell rules out hike and markets rally.
https://www.cnbc.com/2025/12/10/fed-meeting-today-live-updates.html
Moneycontrol. (2025, December 11).
A split Fed: 2026 dot plot reveals strong divide on rate cut outlook.
https://www.moneycontrol.com/news/business/markets/a-split-fed-2026-dot-plot-reveals-strong-divide-on-rate-cut-outlook-13720361.html
CoinCatch Team
Disclaimer:
Digital asset prices carry high market risk and price volatility. You should carefully consider your investment experience, financial situation, investment objectives, and risk tolerance. CoinCatch is not responsible for any losses that may occur. This article should not be considered financial advice.
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