BlackRock warns: Unless the labor market collapses, the Fed's room to cut interest rates by 2026 is "extremely limited"

The senior strategist at BlackRock, the world’s largest asset management firm, recently issued a heavyweight outlook that cast cold water on the market’s expectations for monetary easing in 2026. The core view holds that, after a cumulative 175 basis points of rate cuts and with policy rates approaching neutral levels, the Federal Reserve has no reason to implement significant rate reductions next year unless there is a substantial deterioration in the labor market. This judgment is immediately supported by the latest employment data: initial jobless claims in the US unexpectedly fell to 214,000 last week, well below the expected 224,000, indicating that the resilience of the labor market persists.

As a result, market expectations for a rate cut in January 2026 have quickly converged to a 13% probability, and Bitcoin’s price has dropped below the $87,000 support level. Traders’ bets on a rebound to $100,000 by year-end are now as low as 3%. This macro-driven revision of expectations is pulling the crypto market back from liquidity fantasies to the harsh reality of “higher rates lasting longer.”

BlackRock’s Blueprint: Why “Limited Rate Cuts” Become the New Benchmark for 2026?

While the market debates the magnitude of the Fed’s rate cuts next year, BlackRock’s senior strategists Amanda Lainem and Dominique Blais have provided a calm, even slightly hawkish roadmap. They believe that the main theme of US monetary policy in 2026 will be “pause or extremely limited rate cuts,” rather than the aggressive easing cycle once hoped for by the market. This judgment rests on two core pillars: an assessment of the current policy stance and a diagnosis of the health of the labor market.

First, regarding policy space, since the rate cut cycle began in September 2024, the Fed has cut rates by a total of 175 basis points. After this round of adjustments, the policy rate is gradually approaching what is considered “neutral,” the theoretical rate that neither stimulates nor restrains economic growth. BlackRock strategists point out that, in this context, the Fed lacks strong reasons to continue large-scale easing in 2026. Any additional cuts would require new, clear catalysts—most likely a “significant deterioration” in the labor market—which is not their baseline forecast.

Second, their interpretation of the labor market is key to their view. They acknowledge that the market is “cooling,” but firmly deny that it is “breaking.” Although the unemployment rate rose to 4.6% in November, the highest since 2021, analysts observe that this increase is driven by rising labor force participation and government layoffs, rather than a fundamental weakening of private sector employment conditions. From policymakers’ perspective, the Fed still considers the risks to the labor market to be balanced. Recent data, while confirming some of Chairman Jerome Powell’s earlier downward concerns, do not signal a “severe collapse” in employment. Therefore, the monetary policy balance is subtly shifting from “when to cut again” to “whether to cut and by how much,” gradually shaping a more cautious, data-dependent Fed image.

Data Confirmation: How Strong Employment “Freezes” Rate Cut Expectations and Impacts Markets?

BlackRock’s macro view has been quickly validated by the latest high-frequency data. The US Department of Labor reported that, for the week ending December 20, initial unemployment claims fell to 214,000, significantly below the previous 224,000 and well below the market consensus of 224,000. This report, like a cold shower, doused the market’s earlier hopes of sustained rapid easing fueled by three rate cuts this year.

This unexpectedly strong employment data has dual market implications. On one hand, it reinforces the Fed’s stance of “standing pat” in early 2026. Just the day before, the US Q3 GDP final estimate showed robust economic growth, and this employment data undoubtedly strengthens hawkish voices. According to real-time data from CME’s “FedWatch” tool, traders now see an 86% probability that the Fed will keep rates unchanged at the January 2026 meeting, with only a 13% chance of a 25 basis point cut. Expectations for further liquidity easing in the near term have almost evaporated.

Current key macro expectations and Bitcoin sentiment indicators

• January Fed meeting expectation: 86% chance of no change, 13% chance of a 25bp cut.
• Bitcoin year-end price expectation (Polymarket): only 3% chance of rising to $100,000, 13% chance of dropping to $80,000.
• Recent signals from the employment market: initial claims 21.4K (expected 22.4K), showing resilience beyond expectations.
• Institutional activity signals: BlackRock deposited nearly $200 million worth of Bitcoin into mainstream CEXs, increasing market selling pressure.

On the other hand, the data directly impacts risk asset prices, especially cryptocurrencies that are highly sensitive to liquidity. Bitcoin’s price dropped sharply after the data release, struggling to stay above the psychological level of $87,000. The logical chain behind this is clear and cold: strong employment → fewer recession fears → less need for emergency rate cuts → tighter macro liquidity environment → pressure on risk assets. For the crypto market, which has long regarded “rate cuts = liquidity injection = rising prices” as its main narrative, this is a direct challenge to that story. On-chain analysis platform CryptoQuant even suggests that the market may be transitioning into a bear market scenario, as its Bitcoin composite market index has fallen below the equilibrium point, although it remains well above historical lows.

Market Reaction: Bitcoin Caught Between “Liquidity Expectations” and Actual Selling Pressure

Faced with the sudden shift in macro narrative, the crypto market, especially Bitcoin, exhibits a typical “suffocation” state. It is caught between two forces: on one side, the rapidly fading expectations of easing liquidity; on the other, persistent selling pressure. This dilemma is exposed across price, sentiment, and capital flow dimensions.

Price trends are the most direct reflection. Bitcoin has failed to break out during the year-end “Santa rally,” instead consolidating around $87,000 and showing high sensitivity to negative macro data. This contrasts sharply with the new highs in US stocks and gold, highlighting its fragility as a “marginal liquidity-driven risk asset.” When the market realizes that the “faucet” will not turn on wider, the first assets to be sold off are often these high-volatility, high-valuation assets.

Market sentiment can be quantified through predictive market data. On Polymarket, traders’ bets show that they believe the probability of Bitcoin rebounding to $100,000 before year-end is only a meager 3%. In contrast, the probability of falling to $80,000 is 13%, slightly higher than the 10% chance of reaching $95,000. This data clearly depicts a pessimistic consensus among traders, with little hope for a miraculous rally at year-end.

More severely, internal selling pressure is emerging. Reports indicate that Bitcoin faces further downside risk, partly due to selling pressure from Bitcoin ETFs. Data shows that BlackRock recently deposited nearly $200 million worth of Bitcoin into mainstream CEXs, often seen as a prelude to selling in the spot market. When one of the largest institutional holders begins to realize profits or adjust positions, it has a double impact: increasing actual supply and shaking investor confidence. In a year-end market already thin on liquidity due to holidays, such potential large-scale selling could suppress any rebound attempts.

Diverging Outlooks: Is 2026 a Policy Stagnation or the Start of a New Easing Cycle?

Looking into late 2025 for 2026, disagreements over monetary policy and crypto market prospects are intensifying. The “limited rate cut” camp, represented by BlackRock, contrasts sharply with those still expecting further easing. Bitcoin’s trajectory will heavily depend on which side is ultimately proven correct.

BlackRock’s logic is linear and cautious: labor market not collapsing → inflation risks not eradicated → policy rates near neutral → Fed should pause and observe. If this path materializes, it implies that the “macro liquidity-driven” bull market of the past will not reoccur. Market drivers will need to revert more to fundamental factors like adoption progress, technological breakthroughs, or regulatory clarity. In such an environment, Bitcoin may continue to decouple from traditional risk assets like US stocks and remain in a choppy range due to the lack of a strong, independent narrative.

However, another view, such as that expressed by Galaxy Securities on December 25, suggests there is still room for rate cuts. Their analysis argues that the strong Q3 GDP growth mainly reflects temporary inventory and trade disruptions, not a fundamental shift in employment trends. As employment becomes a key policy consideration and with the new Fed chair candidate gradually confirmed, there could still be about 3 (i.e., 75 basis points) of rate cuts in 2026. Fed Chair favorite Harker has also stated that the Fed is “significantly behind the curve” on rate cuts. If this camp’s view prevails, then the current market pessimism might just be the darkness before dawn. Once expectations of restarting rate cuts revive, suppressed liquidity needs could quickly re-emerge, driving a rebound in crypto markets.

For investors, the key task now may be “manage expectations and stay flexible.” Before the Fed provides clearer forward guidance at the January 2026 meeting, the market is likely to continue high-volatility, directionless oscillations. It is advisable to reduce reliance on a single macro narrative (such as “inevitable rate cuts”) and focus more on on-chain data (like long-term holder behavior, exchange flows) to assess internal market health. It’s also important to recognize that, with institutional participation at high levels, Bitcoin’s response to macro data will become more sensitive and direct. Simplistic labels like “safe haven asset” or “inflation hedge” are no longer valid. The 2026 market will belong to those investors who can finely interpret economic data and understand how liquidity channels influence crypto asset prices.