1 min readA rate cut that hides the Fed’s deep divisions
The Federal Reserve delivered another 25bp cut this week, taking the target range to 3.50 to 3.75 percent. The decision was widely expected, but the internal dynamics of the committee were more revealing. Two members voted for no change, while the dot plot showed that six officials believed a cut was not appropriate at this stage. Their collective projection still signals only one additional cut in 2026. Even so, the labour market is cooling, revisions continue to point lower, and the incoming rotation of Fed personnel means the risks remain skewed toward more easing over the medium term. The Bitcoin price reaction was mildly negative as the cut had been widely expected, while the latest cut came alongside only one potential rate cut in 2026 (dotplot) weighing on sentiment.
Expectations regarding the future Fed’s face
JOLTS openings surprised to the upside, particularly in transport, which implies payrolls could beat expectations when released on 16 December although other growth sectors of the economy demonstrated particular weakness. The NFIB small business survey also came in a touch stronger. What matters now is not the Fed’s current staffing configuration, but what it will look like by mid-2026. Kevin Hassett remains the clear front-runner to replace existing Fed Chair Jerome Powell. He has repeatedly argued that there is considerable room to cut rates and has suggested that policy rates below 3% are a plausible long-term target. He frames this as a growth-first agenda, while insisting that the central bank must remain apolitical. If appointed, and if the administration replaces Lisa Cook with a similarly dovish voice, Trump appointees would dominate the Board.
Disinflationary forces are becoming more visible, with energy prices easing, rents slowing and wage growth drifting lower, while the Fed itself has acknowledged that job gains have likely been overstated in recent months. The tariff story is unfolding more slowly than feared, which reduces near-term inflation pressure. Against this backdrop, further policy loosening appears more likely than not in our view.
For Bitcoin, the macro backdrop remains constructive. Whale selling continues, yet this is being absorbed by strong ETP demand, with another US$928M of inflows so far this week. Year-to-date flows now stand at US$47.8B and are within reach of last year’s record of US$48.7B. A softer US dollar, easier financial conditions and growing institutional allocations continue to create a supportive environment for price action into year end. There are, however, three important data points still ahead that could generate significant volatility: US payrolls, US CPI and the Bank of Japan’s rate decision. Employment is the key release with weak print likely being highly supportive for digital assets.
