The Federal Reserve cuts interest rates as scheduled, and then what?

“We can wait and observe economic developments.” Federal Reserve Chair Jerome Powell made a cautious statement at the press conference, which quickly became a key footnote in interpreting the market trends following this rate cut.

In the early morning of December 11th, Beijing time, the Federal Reserve announced a 25 basis point cut in the federal funds rate target range to 3.50%–3.75%. This marks the third consecutive 25 basis point rate cut since September of this year. After these consecutive rate cuts, internal disagreements within the Fed and Powell’s cautious tone regarding future policy have instead triggered more complex volatility in the financial markets.

1. Policy Implementation: A Rate Cut in Line with Expectations and Internal Disagreements

While the Fed’s rate cut was anticipated by the market, the decision-making process and the signals released afterward were filled with complexity. The following table summarizes key information from this meeting:

The statement from this meeting reintroduced language indicating that the “magnitude and timing” of future policy adjustments will depend on upcoming data. This was interpreted by the market as a clear signal from the Fed: any further easing will set a higher threshold.

2. Divergence and Volatility After the Rate Cut

Following the announcement, global financial markets displayed a “pulse-like” reaction, with different asset classes moving rapidly apart.

● In traditional assets, U.S. stocks responded positively, with the Dow Jones rising about 1%, and the regional banking index, sensitive to interest rates, surged by 3.3%. Meanwhile, bond prices rose, and the yield on the 10-year U.S. Treasury fell accordingly.

● Forex and commodities markets showed a different picture: the U.S. dollar index fell about 0.6%, hitting a one-month low; precious metals strengthened, with silver reaching new highs; and crude oil experienced a V-shaped reversal.

● The most closely watched cryptocurrency market displayed a typical “good news exhausted” pattern. For example, Bitcoin initially surged after the announcement but then quickly dropped over 2.2%. Other major cryptocurrencies like Ethereum also showed similar sharp rises followed by declines.

3. Why Does a Rate Cut Trigger Market Volatility?

The market’s divergent reactions are rooted not merely in the rate cut itself but in the deeper signals conveyed by this meeting.

● First, the market follows the rule of “buy the rumor, sell the fact.” The 25 basis point rate cut was fully priced in, and once expectations materialized, some investors took profits, causing asset prices to retreat.

● Second, the policy path has shifted toward “caution” and “limited” easing. Goldman Sachs analysts explicitly stated that the Fed’s “preventive rate cuts phase is over.” Whether further cuts will occur depends entirely on whether labor market data deteriorates further. Powell also emphasized that current interest rates are already in the “high end of the neutral zone,” and the Fed can “wait and observe.”

● Third, the Fed faces a dilemma. On one hand, signs of cooling in the labor market—central to this rate cut—are evident. Internal estimates suggest that recent non-farm payroll data may be overestimated, with actual monthly job gains possibly only around 80,000 to 90,000.

● On the other hand, inflationary pressures remain. The inflation indicator preferred by the Fed (PCE) is still well above the 2% target. Powell partly blamed tariffs imposed by the Trump administration for causing “one-off price shocks.” This combination of “job market downshifting” and “sticky inflation” makes Fed decision-making particularly difficult.

4. Market Focus on Employment Data and Political Variables

Looking ahead, the market’s trajectory will mainly depend on the evolution of two core variables.

● Key Variable One: The “thermometer” of the labor market. As Goldman Sachs analyzed, the justification for easing policies in the future will depend on whether labor market data reach a “high threshold.” Most market institutions believe that if, before spring 2026, non-farm employment remains below 100,000 and the unemployment rate surpasses 4.5%, it could trigger a restart of rate cuts by the Fed. Conversely, the Fed might only implement 1–2 more rate cuts throughout the year.

● Key Variable Two: Political challenges to policy independence. Political pressure from the White House has heightened concerns about the continuity of future policies. After the decision, President Trump criticized the small size of the rate cut and revealed that he has identified a successor for Powell. Analysts note that the future appointment of the Fed chair and their policy orientation will be major variables influencing market expectations.

5. Cryptocurrency: Interplay of Independent Logic and Macroeconomic Impact

For the cryptocurrency market, the Fed’s policy transmission mechanism is more complex. It’s not simply “rate cuts are bullish for risk assets.”

● Liquidity mechanisms are more important than rate levels. Professional analysts point out that markets should pay more attention to whether the Fed has added liquidity to the financial system through operations like Treasury bond purchases, which directly influence market makers’ willingness and capacity to quote prices for cryptocurrencies and other risk assets. If rate cuts occur without substantive liquidity improvements, market reactions may be muted.

● “Expectations management” determines price trends. Historically, cryptocurrencies have experienced declines after rate cuts because the market has already priced in the news, and traders take profits accordingly. This logic aligns with Bitcoin’s recent “rise and fall” behavior.

● Sensitivity differences among various coins are significant. Due to shallower trading depth and typically higher leverage, altcoins are more sensitive to changes in funding costs. During liquidity tightening or increased market volatility, altcoins tend to fall by larger percentages.

● Additionally, the potential rate hike by the Bank of Japan, as another macro variable, could extract liquidity globally and exert short-term pressure on the crypto market. Some analysts suggest that the cryptocurrency market may enter a consolidation phase lasting until mid-2026, building momentum for the next cycle.

The global market is digesting a key shift: the Fed’s policy focus has moved from “preemptive economic slowdown” to “balancing inflation and employment.” The reintroduction of “magnitude and timing” language in the meeting statement sets a higher data threshold for future rate cuts.

Powell blames tariffs for inflation, while Trump expresses dissatisfaction with the size of the rate cut. This delicate game between the central bank and the White House adds uncertainty to the monetary policy outlook through 2026. For frontier risk assets like cryptocurrencies, the era of unlimited liquidity easing has ended. Markets will need to navigate a more complex macro environment, heavily reliant on specific economic data, to find direction again.

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