Fed Treasury Purchases and Cooling Inflation Drive Mixed Signals for Crypto Markets

Fed Announces Treasury Purchases Amid Rate Cut

The Federal Open Market Committee (FOMC) cut interest rates by 25 basis points on December 10 and announced purchases of short-term Treasury securities^[1]. Fed Chair Jerome Powell stated the purchases were "solely for the purpose of maintaining an ample supply of reserves" and separate from the stance of monetary policy^[1].

The Fed said the purchases would initially total about $40 billion in the first month and could remain elevated for several months to ease near-term pressures in money markets, particularly around seasonal fluctuations such as tax payments^[1].

Bitcoin Retreats Despite Rate Cut

Despite the interest rate cut and Treasury purchase announcement, Bitcoin's price declined from approximately $92,695 on December 10 to around $87,300 at the time of reporting^[1]. Analysts said mixed signals from Powell were likely to dampen a sustained Bitcoin rally until the rate-cutting cycle resumes in 2026^[1].

Polymarket traders were overwhelmingly pricing in no change to Fed policy in January, with the probability of rates staying unchanged at about 77%, while odds of another 25 basis point cut sit near 21%^[1].

Softer Inflation Data Boosts Ethereum

Ethereum surged 4% in 24 hours to trade at $2,947 as of 4:00 a.m. EST on a 41% surge in trading volume to $36 billion^[2]. The price increase came as the US Consumer Price Index (CPI) rose 2.7% over 12 months to November, down from 3% in September, surprising analysts and signaling a slowdown in price pressures^[2].

Falling costs for hotels, milk, clothing, and housing, along with holiday discounts, reinforced investor confidence^[2]. Softer inflation increases the likelihood of US Federal Reserve rate cuts, which fuels optimism in cryptocurrencies like Ethereum and Bitcoin^[2].

Bank of Japan Rate Hike Creates Global Ripples

The Bank of Japan raised interest rates by 25 basis points to 0.75%, the highest in 30 years, marking its second hike this year^[2]. Governor Kazuo Ueda indicated that further increases may follow in 2026, although real rates remain negative, keeping Japanese financial conditions accommodative^[2].

The Yen weakened to around 156 per dollar, lowering the immediate risks of a carry trade unwind^[2]. Bitcoin showed volatility in response to the BOJ hike, with past rate increases historically triggering 23–31% declines^[2]. US 10-year Treasury yields rose to 4.14%, and the dollar index (DXY) reached 98.52^[2].

Technical Outlook for Ethereum

Ethereum's OI-weighted funding rate showed mostly positive readings with brief negative spikes around October 10–12, indicating short-term bearish pressure^[2]. The funding rate has stabilized near zero, implying a balanced market between longs and shorts^[2].

Currently, ETH trades around $2,957, just below a minor resistance area^[2]. If the key support near $2,800 breaks, ETH could continue falling and retest the previous major support zone around $1,000–$1,200^[2]. The RSI (14) indicator moved below the 50 level, showing weakening buying momentum and a higher risk of further downside^[2].

Fed Leadership Transition Looms

Powell's term is set to expire in May 2026^[1]. US President Donald Trump, who has publicly pushed for the next Fed chair to pursue aggressive interest rate cuts, is preparing to interview finalists to succeed him, with National Economic Council Director Kevin Hassett widely viewed as the frontrunner^[1].