This year, the US Federal Reserve has played a crucial role in shaping the momentum of the crypto market, and its influence is expected to extend into 2026 as disagreements among policymakers persist.
In 2025, the Fed implemented three interest rate cuts, the latest occurring on December 10, which reduced rates to a range between 3.5% and 3.75%.
Projections indicate that there will be just one more cut in 2026, even as rates remain at their highest levels since 2008.
Factors driving policymakers’ decisions include labor market conditions, the trajectory of inflation—especially due to tariff impacts—and overall economic growth.
The central bank is also set to appoint a new chair following Jerome Powell’s term conclusion in May, with President Donald Trump already narrowing down potential dovish candidates.
What to Expect from the Fed in Early 2026?
The Fed’s upcoming meeting on January 27 and 28 is critical, representing the first opportunity for governors to revise guidance, potentially influencing market sentiment for the quarter.
According to CME Group, investors forecast a mere 20% chance of a 25 basis point rate reduction in January, which escalates to a 45% likelihood by the Fed’s mid-March meeting.
Divisions Revealed in the Dot Plot
The December 2025 dot plot illustrates noteworthy divisions amongst policymakers, with an equal number foreseeing zero, one, or two rate cuts, instilling considerable uncertainty as 2026 commences.
While the chart sheds light on the Fed’s consensus, projections often fluctuate with new economic data.
Current central projections for late 2025 stand at 3.6%, essentially aligning with the present rate, and 3.4% by the end of 2026, suggesting only one cut for the upcoming year.
Analysts at Charles Schwab noted after the Fed’s December cut that the “updated projections weren’t particularly hawkish,” with 12 out of 19 policymakers anticipating at least one additional cut next year.
Expectations for Two Cuts in 2026
Jeff Ko, chief analyst at CoinEx Research, shared with Cointelegraph that the Fed “is grappling with significant internal divisions,” and the dot plot reveals a “wide array of viewpoints with no clear agreement on the trajectory for interest rates in 2026.”
“I believe the Fed is poised to implement two rate cuts in 2026. They are likely to pause in January, followed by a cut in March, coinciding with the remainder of Powell’s term as Chair, concluding in May.”
“This timeline would be validated if labor market conditions persistently remain stagnant, even as inflation might peak above 3% in Q2. After the leadership transition, new Fed officials are expected to continue a gradual easing strategy throughout the year,” he stated.
Related: Crypto possesses everything needed for a bull market, so why is the market declining?
Various scenarios could unfold with the Fed in Q1, according to Jeff Mei, chief operating officer at BTSE, who spoke to Cointelegraph.
“The most probable scenario is that the Fed cuts rates once in Q1 while maintaining the current pace of Treasury bill buybacks, which would introduce some liquidity into the market, benefiting crypto inflows,” he mentioned.
“In a favorable scenario, if inflation declines and unemployment rises, the Fed may need to act more decisively, implementing two cuts alongside increasing its T-bill buybacks. Crypto markets would benefit from heightened demand for riskier assets.”
Conversely, the worst-case scenario would emerge if inflation resurfaces, forcing the Fed to halt both rate cuts and T-bill buybacks. Such outcomes could lead to a decline in stock and crypto markets, he cautioned.
Milder Hopes for 2026
Justin d’Anethan, head of research at Arctic Digital, expressed to Cointelegraph that many held high expectations regarding the cessation of quantitative tightening and the potential onset of a new era of Fed dovishness.
“However, the prevailing sentiment leans towards disappointment, as the Fed appears accommodating yet remains very cautious,” he noted.
“For an asset that essentially hedges against reckless central bank strategies, the devaluation of fiat currencies, and ultimately, the liquidity in global markets, this more cautious approach diminishes the euphoric phase that many crypto traders were anticipating.”
Nevertheless, a new chair could alter the Fed’s overarching perspective on rate policies and its readiness to endorse risk assets like crypto.
When interest rates are lowered, investors often shift towards higher-risk investments such as crypto, as traditional options like bonds and term deposits become less appealing. This scenario typically drives up demand and purchasing pressure, resulting in rising prices.
Magazine: Big questions: Would Bitcoin withstand a 10-year power outage?
