This Thursday (Beijing time), the Federal Reserve will announce its final interest rate decision of the year. Market expectations are very consistent: According to CME FedWatch data, the probability of a 25 basis point rate cut is over 85%. If implemented, this will be the third consecutive rate cut since September, bringing the federal funds rate down to the 3.5%-3.75% range. For crypto investors accustomed to the narrative of "interest rate cuts = good news," this sounds like good news. However, the problem is that when everyone expects a rate cut, the rate cut itself ceases to be a market driver. Financial markets are expectation machines. Prices reflect not "what happened," but "what happened relative to expectations." An 85% probability means the rate cut has already been fully priced in; unless there are surprises, the market won't react much when it's actually announced early Thursday morning. So what is the real variable? The Fed's attitude towards next year. A 25 basis point cut is basically certain, but how long the rate-cutting cycle will last, and how many more cuts will occur in 2025, are the things the market is truly betting on. Early Thursday morning, the Fed will simultaneously update its forecasts for the future path of interest rates, and these forecasts often have a greater impact on market direction than the actual rate cut decision. However, there's an additional problem this time: the Federal Reserve itself may not be entirely clear on the situation. The reason is that the US federal government shut down for 43 days, from October 1st to November 12th. During this period, statistical agencies suspended operations, leading to the cancellation of the October CPI release. The November CPI was postponed to December 18th, a full week later than this week's FOMC meeting. This means that Fed members are lacking inflation data from the past two months when discussing the interest rate outlook. When policymakers themselves are groping in the dark, the guidance they provide becomes increasingly vague, and vagueness often implies greater market volatility. Let's first look at this week's timeline: We can analyze in detail what signals the Fed might give and what market reactions they might correspond to.
Expectations for Next Year
After each FOMC meeting, the Fed releases a "Summary of Economic Projections."
It contains a chart showing all Fed members' expectations for future interest rates.
Each member draws a dot, indicating where they believe interest rates should be at the end of the year. Because it looks like a bunch of scattered dots, the market commonly calls it a "dot plot." You can find the original dot plots from previous years on the Fed's website.
The image below is the dot plot released from the FOMC meeting on September 17.
This illustrates the divisions and consensus within the Federal Reserve. If the points converge, it indicates that the committee members share a common vision, and the policy path is relatively clear; if the points are widely dispersed, it suggests internal disagreements and a future fraught with uncertainty. For the crypto market, uncertainty itself is a risk factor. It suppresses risk appetite, causing funds to tend to remain on the sidelines rather than enter the market. As can be seen from the chart, the points in the 2025 column are mainly concentrated in two areas: approximately 8-9 points around 3.5%-3.625%, and 7-8 points around 3.75%-4.0%. This indicates that the committee is divided into two factions: one believes there should be 1-2 more cuts this year, while the other believes there should be a pause or only one cut. The median is around 3.6%, meaning that the majority's baseline expectation is 2 more cuts in 2025 (including this week's). Looking at 2026, the division among Fed members is even greater. The current interest rate is 3.75%-4.00%. If it drops to around 3.4% by the end of next year, it means only 1-2 cuts throughout the year. However, the chart shows that some members believe it should be cut to 2.5% (equivalent to 4-5 cuts), while others believe it should remain unchanged at 4.0% (no cuts at all). Within the same committee, the most aggressive and the most conservative expectations differ by as much as 6 rate cuts. This is a highly divided Federal Reserve committee. This division itself is a signal. If the Fed itself is not clear-cut, the market will naturally vote with its feet. Currently, traders' bets are more aggressive than official guidance. CME FedWatch shows that the market is pricing in 2-3 rate cuts in 2026, while the official dot plot only shows 1. Therefore, this Thursday's FOMC meeting is, to some extent, a "matching of tables" between the Fed and the market: will the Fed align with the market, or stick to its own pace? Three Scenarios, Three Reactions Based on current information, there are roughly three possible directions for the FOMC this week. The most likely scenario is "As Expected": a 25bp rate cut, maintaining the guidance from the September meeting on the dot plot, and Powell repeatedly emphasizing "data dependence" at the press conference, without giving a clear direction. In this scenario, the market will not experience significant volatility. This is because the rate cut has already been priced in, the guidance remains unchanged, and there is a lack of new trading signals. The crypto market will likely follow the US stock market with slight fluctuations before returning to its original trend. This is also the benchmark expectation of most Wall Street institutions, including recent research reports from Goldman Sachs and Raymond James, which point in this direction. The next possible scenario is a "dovish" stance: a 25bp rate cut, but the dot plot shows that there may be two or more cuts in 2026. Powell's wording is relatively soft, emphasizing that labor market risks outweigh inflation risks. This is equivalent to the Fed moving closer to market expectations and confirming an easing path. A weaker dollar will push up dollar-denominated assets, while improved liquidity expectations will boost market sentiment. BTC and ETH may rebound following the US stock market, with the former potentially testing recent highs. A less probable but not ruleable scenario is a "hawkish" stance: While a 25bp rate cut was implemented, Powell emphasized inflation stickiness, suggesting limited room for further rate cuts next year; or multiple dissenting votes indicate internal resistance to continued easing. This essentially tells the market, "You're overthinking it," with a stronger dollar, tightening liquidity expectations, and pressure on risk assets. The crypto market may face a short-term correction, especially for high-beta altcoins. However, if the wording is merely hawkish rather than a substantial policy shift, the decline is often limited and may even present an entry opportunity. Normally, the Fed adjusts its dot plot based on the latest data. But this time, due to the government shutdown, they lack two months' worth of CPI data and can only make judgments based on incomplete information. This leads to several chain reactions. First, the reference value of the dot plot itself is diminished; even the committee members themselves are uncertain, and the dots they draw may be more scattered. Second, Powell's press conference will carry more weight, and the market will look for direction in every word he uses. If the dot plot's indications contradict Powell's rhetoric, the market will be more confused, and volatility could amplify. For crypto investors, this means that Thursday morning's market movements may be more difficult to predict than usual. Instead of betting on direction, focus on the volatility itself. When uncertainty rises, controlling position size is more important than betting on price movements. Tonight's job openings data isn't as important as you think. We've discussed Thursday's FOMC, but there's another data release tonight (Tuesday 23:00 Beijing time): JOLTs. On social media, people occasionally exaggerate its importance, claiming it "quietly determines the direction of liquidity." However, frankly, JOLTs don't carry significant weight in macroeconomic data. If you're short on time, just keep an eye on Thursday's FOMC meeting; if you want to learn more about the background of the labor market, read on. JOLTs stands for Job Openings and Labor Turnover Survey. It's published monthly by the U.S. Bureau of Labor Statistics (BLS) and tracks how many jobs are open, how many people have been hired, and how many people have left their jobs. The most closely watched metric is "job openings": the higher the number, the stronger the demand for hires and the tighter the labor market. At its peak in 2022, this number exceeded 12 million, meaning that companies were aggressively recruiting and wages were rising rapidly, which the Fed worried would push up inflation. Now, this number has fallen back to around 7.2 million, essentially returning to pre-pandemic levels. Image source: Jinshi Data. Why is the importance of this data potentially overestimated? First, JOLTs are lagging indicators. Today's data is from October, but it's already December. The market pays more attention to more timely data, such as weekly initial jobless claims and the monthly non-farm payroll report. Second, the expected number of job openings of around 7.1 million is not considered "overheated." Analysts previously pointed out that the ratio of job vacancies to the unemployed population fell below 1.0 in August, meaning that there is now less than one job opening for every unemployed person. This is completely different from the situation in 2022 where "one unemployed person had two job openings." The narrative of an "overheated" labor market is outdated. According to predictions from LinkUp and Wells Fargo, the October JOLTs, to be released tonight, will most likely be around 7.13-7.14M, not much different from the previous 7.2M. If the data meets expectations, the market will likely not react; it merely confirms the existing narrative that the labor market continues to cool slowly and will not change anyone's expectations of the Fed. Tonight's data is more like an "appetizer" before the FOMC meeting; the real main course will be on Thursday morning. What will happen to my BTC? The previous chapters discussed macroeconomic data, but you might be more concerned about one question: how exactly will these things affect my BTC and ETH? To put it simply, they will have an impact, but it's not as simple as "interest rate cut = price increase." The Fed's interest rate decisions influence the crypto market through several channels. First, the US dollar. Lower interest rates mean lower yields on dollar-denominated assets, causing funds to seek other destinations. When the dollar weakens, dollar-denominated assets (including BTC) tend to perform better. Second, liquidity. In a low-interest-rate environment, borrowing costs are low, resulting in more money in the market, some of which flows into riskier assets. The bull market of 2020-2021 was largely a result of the Fed's unlimited quantitative easing. Thirdly, there's risk appetite. When the Fed releases dovish signals, investors are more willing to take risks, and funds flow from bonds and money market funds to stocks and cryptocurrencies; conversely, hawkish signals cause funds to flow back to safe-haven assets. These three channels together form a transmission chain of "Fed policy → US dollar/liquidity → risk appetite → crypto assets." Theoretically, BTC now has two popular identities: "digital gold" or "risk asset." If it's digital gold, it should, like gold, rise during market panics and be negatively correlated with the stock market. If it were a risky asset, it should rise and fall with the Nasdaq, performing well during periods of ample liquidity. However, in reality, BTC has resembled the latter more in recent years. According to CME research, starting in 2020, the correlation between BTC and the Nasdaq 100 jumped from near zero to around 0.4, sometimes even exceeding 0.7. The Kobeissi Letter recently pointed out that BTC's 30-day correlation once reached 0.8, the highest level since 2022. But recently, an interesting phenomenon has emerged. According to a CoinDesk report, the correlation between BTC and Nasdaq has fallen to -0.43 over the past 20 days, showing a clear negative correlation. (Data source: https://newhedge.io/) While Nasdaq is only 2% away from its all-time high, BTC has fallen 27% from its October high. Market maker Wintermute offers an explanation: BTC is currently exhibiting a "negative skew," meaning it falls more when the stock market falls and reacts sluggishly when the stock market rises. In their words, BTC "only shows high beta in the wrong direction." What does this mean? If the FOMC releases dovish signals this week and US stocks rise, BTC may not rebound in tandem; however, if it releases hawkish signals and US stocks fall, BTC may fall even more sharply. This is an asymmetric risk structure. Summary After all that, here's a framework for continuous tracking. What to focus on this week (December 9-12)? The core focus is the FOMC meeting early Thursday morning. Specifically, look at three things: whether there are any changes to the dot plot, especially the median interest rate forecast for 2026; whether Powell's press conference wording leans dovish or hawkish; and whether there are multiple dissenting votes. What to focus on in mid-to-late December? The November CPI will be released on December 18th. If inflation data rebounds, the market may repric its expectations for interest rate cuts next year, at which point the Fed's narrative of "continuing easing" will be challenged. What to watch in Q1 2026? First, there's the personnel change at the Fed. Powell's term expires in May 2026. Second, there's the continued impact of Trump's policies. If tariffs expand further, they could continue to push up inflation expectations, compressing the Fed's easing space. Additionally, continue to monitor whether the labor market is deteriorating rapidly. If layoffs begin to rise, the Fed may be forced to accelerate interest rate cuts, which would be a completely different scenario.
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