Crypto Eyes Relief Rally as December Fed Rate Cut Rises to 71%

Markets are now pricing in a high probability that the Federal Reserve will cut rates at its December meeting. According to the CME FedWatch toolthe probability of a rate cut has risen by 25 basis points to 71%, compared to 30-40% earlier this week.

The shift comes after recent comments from New York Fed President John Williams, who indicated that a short-term rate cut is possible without jeopardizing the Fed’s inflation targets.

Policy too restrictive?

Williams noted that he views monetary policy as “modestly restrictive” and suggested there is room to move rates closer to a neutral stance. He also downplayed the impact of tariffs on inflation and expects price pressures to ease over time.

But not all Fed officials share this view.

Fed officials remain divided

According to a report from ReutersBoston Fed President Susan Collins said Friday she believes current monetary policy is appropriate given the economy’s resilience. She expressed hesitation about further rate cuts, describing the current policy offering as “mildly restrictive” and suitable for maintaining some downward pressure on inflation.

Dallas Fed President Lorie Logan recommended leaving rates unchanged for a while, while Fed Governor Stephen Miran, who has supported bigger cuts in the past, said he would support a 25 basis point cut if his vote were a marginal one.

Crypto hopes rise

This comes amid a broader downturn in the crypto market, and traders and investors are hopeful that a rate cut could boost Bitcoin and other digital assets. The crypto community reacted positively to the rising opportunities and expected that it could trigger a massive rally in digital assets.

However, some analysts have also urged caution. The US created more jobs than expected in September, but the higher unemployment rate and revised past figures gave the Fed a mixed signal on whether to cut rates further to support the labor market.

Fed Rate Cut Opportunities “Mispriced”

In a recent X post, Coinbase institutional noted that while markets are leaning towards no rate cut, the chances of a rate cut have actually been misjudged. It notes that recent rate research, private market data and real-time inflation trends suggest otherwise.

Since the October FOMC meeting, futures have shifted from a 25 basis point cut to a hold bias, mainly due to rising inflation concerns. But research shows that rate increases can lower inflation and increase unemployment in the short run, acting as negative demand shocks.

It notes that if rates are already tightening financial conditions and cooling demand, the Fed may not need to remain aggressive, which could pave the way for bigger rate cuts.