The Federal Reserve is meeting on December 9 and 10 amid expectations of a rate cut, which are playing a key role in the recent volatility of cryptocurrencies and other markets. A gap between market expectations and the Fed’s new projections could reignite selling pressure.
A closely watched meeting
On December 9 and 10, members of the Federal Reserve Committee will meet for the last time this year to update monetary policy, a crucial decision for risky assets, including cryptocurrencies, given the recent volatility. A significant part of the turbulence seen in recent weeks can be explained by changing expectations of rate cuts, as well as recent pressure on risky assets caused by their downward revision.
Markets pause ahead of Fed decision
The implied probability of a further 25 basis point cut in December fell from over 90% at the end of October to around 30% on November 20, following stronger-than-expected inflation data and Jerome Powell’s wait-and-see stance at the previous meeting. However, this scenario has regained credibility in recent days thanks to accommodative comments from several influential members of the central bank, notably John Williams and Christopher Waller. The probability has thus risen to around 80%, leading to a strong rebound in risky assets. The S&P 500 erased its losses to end November slightly higher, while Bitcoin (BTC) reduced its decline to around 15% thanks to a rebound of more than 10%.
It is now unlikely that this 80% probability will change significantly between now and the meeting, given the absence of major macroeconomic data and speeches by Fed members on the calendar. In terms of risk/return, these expectations now appear relatively high given the arguments put forward by Jerome Powell in favor of keeping rates unchanged in October, arguments that remain fully valid.
Since the last meeting, inflation has come in higher than expected and remains about 1 point above the Fed’s target, while the latest employment figures show no significant deterioration. The rise in unemployment was mainly caused by new entrants to the labor market.
The Fed’s projections for 2026 will also be crucial
Beyond the rate decision, the new economic projections released at this quarterly meeting will be just as important. Each member of the Committee presents their projections for growth, inflation, and rates for the next three years. The comparison with the September projections will be decisive for the markets, particularly for 2026. In September, the Committee anticipated only one additional 25 basis point cut in 2026, while the markets are currently expecting at least two. If the Committee sticks to its September projections, selling pressure could quickly return on risky assets.
In my view, the risks are more skewed to the downside in the short term. For the Fed to provide real support for risky assets on December 10, it would need to exceed current expectations, i.e., cut rates by 25 basis points and project at least two further cuts next year. However, the most likely scenario seems to me to be a “hawkish rate cut” in December, i.e., a cut accompanied by a firm tone and projections largely unchanged from those in September. The new projections will be available on this page.
