The Federal Reserve's rate cut faces rare disagreement. What does this mean for the cryptocurrency market?

The Federal Reserve decided at its December 9-10 meeting to cut the federal funds rate target range by 25 basis points to 3.5% to 3.75%, marking the third consecutive rate cut in recent times.

The minutes show that this decision was far from a consensus, with the Federal Open Market Committee experiencing its most serious disagreement since 2019. Six officials opposed the rate cut, including two voting members of the FOMC.

01 Meeting Disagreements

The December policy meeting minutes reveal a deeply divided decision-making body. Nine members supported the rate cut, while three members voted against it, the highest number of dissenters since 2019.

The opposition did not come from a single camp but from two extremes. Federal Reserve Board Governor Stephen Milkan supported a more aggressive 50 basis point rate cut, while Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid leaned toward keeping rates unchanged.

This kind of “bipolar disagreement” is quite rare in Fed history, indicating a lack of clear consensus on how to balance inflation and employment risks.

02 Hawk-Dove Clash

Officials supporting the rate cut believe that recent slowing in job growth and rising unemployment indicate increased downside risks to the labor market. They view this rate cut as a “forward-looking risk management measure” aimed at reducing the likelihood of further weakening in employment.

Opposing officials are cautious about inflation. They point out that progress toward the 2% inflation target has recently stagnated, and inflation could remain relatively high in the short term.

Some participants are concerned that “continuing to ease policy in the face of uncertain inflation prospects may increase the risk of policy misjudgment.”

03 Future Path

The minutes show that most officials believe that if inflation gradually declines as expected, further rate cuts remain reasonable, but this depends on new data.

Some participants suggested that after this rate cut, it would be appropriate to hold policy rates steady for a period.

According to the latest forecasts released after the meeting, Fed officials expect at least one rate cut in 2026. The language in the policy statement indicates that the committee may choose to pause further rate adjustments until inflation shows a clear downward trend or unemployment rises significantly above expectations.

04 Market Impact

Uncertainty in Fed policy often leads to increased volatility in traditional financial markets, which often spill over into the cryptocurrency market. Historical data shows that when the Fed’s policy path is unclear, cryptocurrencies like Bitcoin tend to exhibit higher price volatility.

Notably, despite policy uncertainty, recent whale groups have been continuously increasing their holdings of DeFi tokens within the Solana ecosystem. Monitoring shows that in the past two days, three wallets have withdrawn about $15.9 million worth of DeFi tokens from exchanges.

These tokens include approximately $13.77 million worth of 7.39 billion PUMP tokens and about $621,000 worth of 8.02 million CLOUD tokens. This suggests that some large investors may be positioning in specific crypto assets amid market uncertainty.

05 Balance Sheet Operations

In addition to rate decisions, the December meeting also decided to initiate short-term US Treasury bond purchases, i.e., reserve management purchases. The minutes disclose that the Fed has judged that bank reserve balances have fallen from previously “ample” levels to a “sufficient” range.

According to the minutes, the Fed plans to start these operations from December 12, with an initial purchase scale of about $40 billion. Staff believe that early initiation helps reduce liquidity volatility, considering that tax payments at the end of April could further drain reserves.

Decision-makers generally agree to adjust the scale and pace flexibly based on market conditions in subsequent operations. This operation is emphasized as a reserve management tool and should not be interpreted as a change in monetary policy stance.

06 Data Gaps and Outlook

A key factor influencing Fed decisions is the data gap issue. The US government shutdown severely affected economic data for October and November. The lack of relevant data has hindered the Fed’s ability to make further judgments.

The minutes note that the absence of official data “continues to shape outlooks and policymakers’ views on how to manage risks.” Some officials who oppose or doubt recent rate cuts believe that “upcoming labor market and inflation data will help determine whether to cut rates.”

Data collection is underway, with employment and consumer price data scheduled for release on January 9 and January 13, respectively, restoring normal release schedules. The next Fed meeting will be held on January 27-28, with investors currently expecting the central bank to keep the benchmark rate unchanged.

07 Strategy Suggestions for Gate Users

In an environment of increased Fed policy uncertainty, Gate users may consider the following strategies: For short-term traders, closely monitor the release times of key macroeconomic indicators, especially employment and inflation data on January 9 and 13.

These data releases could trigger market volatility and create trading opportunities. Additionally, focus on sectors attracting institutional funds, such as DeFi tokens within the Solana ecosystem.

Long-term investors should consider diversifying their portfolios and avoid over-concentration in a single asset or sector. They can utilize various financial products offered by the Gate platform to earn stable returns amid volatility. It’s important to stay calm and avoid emotional decisions driven by short-term market fluctuations.

Gate provides comprehensive market analysis tools and real-time data to help users make informed decisions in complex market environments. Users are encouraged to leverage these resources to develop investment strategies aligned with their risk tolerance.

Future Outlook

As of December 31, the cryptocurrency market’s reaction to Fed disagreements has been modest. The market generally expects the next Fed meeting to keep rates steady.

With the release of key economic data in January and the rotation of new voting members, including Presidents from Cleveland, Philadelphia, Dallas, and Minneapolis, the uncertainty surrounding Fed monetary policy may persist, presenting both challenges and opportunities for crypto traders.

Disagreements among policymakers are far from over, and the crypto market will have to navigate this uncertainty to find its direction.