Will the Fed cut interest rates in December? Cryptocurrencies weaken as odds shrink

The timing is tough, as Bitcoin has fallen to its lowest level in six months.

The decline came as investors lost confidence that the Federal Reserve would cut interest rates at its next meeting. And this is weighing heavily on both the stock market and the crypto market.

Investors are now bracing for a busy week of economic data as the government reopens after a record 43-day government shutdown.

Lower odds of Fed rate cut

The Fed cut interest rates by 25 basis points at its last meeting. After the Fed cut interest rates in September, major financial institutions such as JPMorgan expected two more rate cuts in 2025 and one more in 2026.

However, market expectations for another interest rate cut in December have declined significantly. The probability of a rate cut is currently below 45%, according to the CME FedWatch tool.

Fed officials cautious about inflation

A growing number of officials are warning that inflation remains too high and they may prefer to keep interest rates where they are.

Kansas City Fed President Jeff Schmidt recently said concerns about inflation remain and argued that keeping interest rates on hold heading into December may be a better option. He also said he believes job market problems are likely to be prolonged due to changes in technology and immigration, and that lower interest rates won’t solve the problem.

“Rate cuts could have a long-lasting impact on inflation as our commitment to the 2% target is increasingly called into question. This was my opposition to a rate cut at the last meeting, and it continues to guide my thinking heading into the December meeting.” he said.

Dallas Fed President Laurie Logan also said she does not support another rate cut in December. He said he would need “compelling evidence” of accelerating inflation and “more than modest cooling” in the labor market before supporting further cuts.

These comments highlight just how divided the Fed currently is.

Fed meets banks as liquidity tightens

New York Fed President John Williams met with major Wall Street banks this week to discuss the central bank’s Standing Repurchase Facility (SRF) amid signs that market liquidity is tightening.

Mr. Williams convened the Fed’s primary dealers to consider the purpose of the SRF as a monetary policy tool and gather feedback on how to maintain interest rate control effectiveness.

The SRF is designed to allow eligible financial institutions to quickly convert U.S. Treasuries into cash when market liquidity becomes tight. Despite being created in 2021, it was rarely used until recently. The increase in activity in late October drew attention, but the activity was still lower than most expected.

Some Fed officials were concerned about why companies would choose to borrow in the market at higher rates than the Fed offers.

Will the Federal Reserve restructure first?

Looking ahead, there is a possibility that the Federal Reserve itself will undergo major changes next year. Atlanta Fed President Rafael Bostic is set to step down early next year, giving President Trump a new opportunity to influence the committee. Mr. Powell’s term ends in May, and the Supreme Court’s decision allowing the president to fire Fed Director Lisa Cook could bring about another change.

However, several regional Fed presidents are scheduled to take turns on the committee next year, many of them hawkish.

For now, uncertainty remains, with investors watching closely to see whether the Fed will cut rates or leave them unchanged in December.

Impact on the virtual currency market

Lower interest rates are typically bullish for risky assets such as cryptocurrencies, as lower interest rates mean increased liquidity and higher risk appetite. However, failure to cut rates at the next meeting could cause stocks and cryptocurrencies to plummet, adding to the pressure on an already fragile market.