Federal Reserve Cuts Rates to 3.75% But Signals Minimal Future Reductions, Dampening Bitcoin Rally Hopes

Fed Delivers Expected Rate Cut Amid Economic Uncertainty

The Federal Reserve slashed interest rates by 25 basis points on Wednesday to a target range of 3.5% to 3.75%, but mixed forward guidance from Chair Jerome Powell has tempered expectations for cryptocurrency markets and raised questions about the pace of future monetary easing ^[1].

"In the near term, risks to inflation are tilted to the upside and risks to employment to the downside, a challenging situation. There is no risk-free path for policy," Powell stated at Wednesday's Federal Open Market Committee (FOMC) meeting ^[1].

The decision came with notable internal dissent, as two Fed members voted to maintain rates at 4%, marking an unusually sharp divergence for a committee that typically demonstrates strong internal alignment ^[2].

Limited Rate Cuts Expected Through 2026

Market analysts now anticipate only one additional rate cut through 2026 under Powell's leadership, whose term expires in May 2026 ^[1]. According to CME Group data, just 24.4% of traders expect a rate cut at the next FOMC meeting in January 2026 ^[1].

Market analyst and Coinbureau founder Nic Puckrin noted that "attention will turn to liquidity and the Fed's balance sheet policy in early 2026. However, despite the Treasury bill purchase announced today, quantitative easing isn't coming until things start breaking, and that always means more volatility and potential pain" ^[1].

Fed Introduces Liquidity Measures

More significant for financial markets was the Fed's announcement of a new $40 billion program to purchase short-dated government bonds aimed at managing liquidity levels ^[2]. This marks a substantial policy reversal from recent years, which saw a steady drawdown of the Fed's balance sheet from a peak of $9 trillion in 2022 to the current $6.6 trillion ^[2].

The added liquidity increases available cash for bank lending, potentially supporting credit growth, business investment, and consumer borrowing during periods of economic slowdown ^[2].

Bitcoin Markets Remain Cautious

Despite the shift toward more expansionist monetary policy, Bitcoin derivatives markets reflect increasing skepticism about sustained bullish momentum. Bitcoin options pricing implies a 70% probability that BTC will remain at or below $100,000 by January 30, according to the Black & Scholes model ^[2].

While low interest rates typically fuel risk-on assets like Bitcoin, the cryptocurrency has continued to underperform relative to gold, with traders remaining wary amid uncertain economic conditions ^[2].

Economic Outlook and Political Pressures

Powell characterized consumer spending and business investment as "solid," while noting that layoffs and hiring remain low ^[1]. However, inflation remains "somewhat elevated" above the Federal Reserve's 2% target, and the housing sector continues to be "weak" ^[1].

The Fed acknowledged challenges in assessing current economic conditions due to missing months of public economic reports resulting from the recent US government shutdown ^[1].

President Donald Trump has reportedly been considering Powell's replacement, with National Economic Council director Kevin Hassett widely reported as the frontrunner. Hassett previously served as an adviser on Coinbase's Academic and Regulatory Advisory Council ^[1]. Trump has already indicated he expects the next Fed chair to pursue more aggressive rate cuts ^[1].

Market Implications

The stock market stands to benefit more directly from the Fed's expansionist stance, as companies anticipate lower capital costs and easier consumer financing ^[2]. Bitcoin's reaction remains less predictable, as investors rotating out of safe short-term government bonds are unlikely to view cryptocurrency as a reliable store of value in the current environment ^[2].