With the Federal Reserve completing its third rate cut of the year in December and lowering the federal funds target range to 3.50%–3.75%, market attention has already shifted toward 2026.
Although the Fed’s official dot plot median forecast indicates only one more rate cut (25 basis points) in 2026, interest rate futures markets still anticipate two rate cuts that year, with a cumulative reduction of about 58 basis points.
01 Diverging Rate Cut Expectations
After the Fed’s December meeting, a notable gap emerged between policymakers’ and market observers’ forecasts. The dot plot shows most Fed officials expect just one rate cut in 2026.
Financial markets, however, see things differently. Market pricing suggests investors expect a total of 58 basis points in rate cuts next year, which equates to two standard cuts.
Goldman Sachs takes an even more dovish stance, projecting that this easing cycle will extend into 2026, with the federal funds target rate potentially dropping to 3% or lower. This outlook is based on the assumption that inflation pressures ease moderately and the labor market shows further signs of weakness.
02 Shifting Logic Behind Rate Cuts
The rationale for the Fed to resume rate cuts in 2025 has shifted from inflation concerns to employment. While inflation remains above the 2% target, the negative impact of slowing job growth has become more pronounced.
The US unemployment rate rose from 4% in January to 4.4% in September, marking its highest level since October 2021.
Josh Schiffrin, Chief Strategist at Goldman Sachs Global Banking & Markets, points out that Fed Chair Jerome Powell has recently sent clear signals: structural changes in the labor market are drawing increased attention from policymakers. Employment data in the coming months will be a key factor in determining whether rate cuts resume.
03 Divergence in Global Central Bank Policies
Globally, major central banks are taking increasingly divergent policy paths. Unlike the Fed’s rate-cut trajectory, the Bank of Japan may stick to its commitment to further rate hikes.
The European Central Bank is expected to keep its benchmark rate unchanged at 2%, while the Bank of England may follow the Fed’s lead and cut rates.
Emerging market economies are also taking varied approaches. The Central Bank of Turkey announced another rate cut, lowering its benchmark rate by 150 basis points to 38%. Meanwhile, Brazil’s central bank is holding its high rate steady at 15%, maintaining a hawkish stance.
04 Asset Class Impact Analysis of Rate Cuts
Historically, the Fed’s rate-cut cycles have affected asset classes in different ways.
For the US Dollar Index, its trend is not directly linked to Fed rate cuts but depends more on the interest rate differential between the US and other economies, as well as relative economic strength. The expected weakening of the Dollar Index in 2025 will be driven not only by Fed rate cuts but also by a softer US economy and declining confidence in dollar-denominated assets.
Gold may benefit from moderate rate cuts and risks to Fed independence. While the downside for US Treasury yields is limited, if Fed independence erodes and concerns about US fiscal health and dollar credibility continue to grow, gold will remain a beneficiary.
As for the Chinese yuan exchange rate, it is likely to remain resilient in 2026. Supportive factors include robust export performance, easing trade tensions, and rising attractiveness of yuan-denominated assets.
05 Potential Impact on the Cryptocurrency Market
With US dollar liquidity moderately easing, the global liquidity landscape may shift. As a liquidity-sensitive asset class, the crypto market could face new opportunities and challenges.
Divergent monetary policies among major central banks—especially between the Fed and others—may intensify capital flows, with some funds seeking higher returns or safe havens potentially moving into crypto assets.
Potential changes in Fed leadership are also adding uncertainty to the market. Former President Trump has indicated that former Fed Governor Kevin Warsh is the leading candidate for the next Fed Chair. Changes in policymakers could influence the future direction of monetary policy.
06 Gate Platform Digital Asset Trends
As of December 17, 2025, Fed rate cut expectations have influenced the following trends for digital assets on Gate:
Bitcoin (BTC) has shown resilience in price after a brief correction, buoyed by improved macro liquidity expectations. Ethereum (ETH) and other major smart contract platform tokens have seen increased trading activity as market risk appetite gradually recovers.
Amid rate cut expectations, tokens linked to real-world assets (RWA)—which have strong ties to the real economy—are drawing attention. At the same time, volatility in traditional financial markets may prompt some investors to use stablecoins as short-term hedges or transitional assets.
Please note: The cryptocurrency market is highly volatile, and all price data changes in real time. The above reflects market observations at a specific moment and does not constitute investment advice. Please consult Gate for the latest real-time prices and make independent decisions.
07 Outlook for the 2026 Rate Cut Path
Although the Fed’s dot plot shows just one rate cut in 2026, persistent labor market weakness and relatively stable inflation could prompt the Fed to cut rates twice, with the pace likely concentrated in the first half of the year.
Luo Zhiheng, President of Yuekai Securities Research Institute, believes that under the base case, the Fed will cut rates twice in 2026, lowering the federal funds target rate floor to around 3%. Key factors include stable US inflation trends, elevated risks of labor market weakness, and possible White House intervention tilting policy toward further easing.
The timing of rate cuts in 2026 remains uncertain but is most likely to materialize in the first half. As the positive effects of easing become apparent and the labor market gradually stabilizes, the Fed may pause further cuts.
Looking Ahead
As the gap between market expectations for 2026 rate cuts and the Fed’s dot plot narrows, global capital is quietly repositioning. Goldman Sachs forecasts the federal funds rate could fall below 3%, while Morgan Stanley believes the Fed has entered a "wait-and-see" mode.
As the vanguard of global capital flows, the Bitcoin price on Gate fluctuates with each release of US employment data. Traders who closely monitor Fed officials’ remarks and inflation data have already begun adjusting their portfolio allocations.
Whether the Fed ultimately cuts rates once or twice, the shift in global liquidity conditions is already underway.
