The US Federal Reserve has been highly influential on crypto market momentum this year, and its impact is likely to continue into 2026 as divisions among policymakers remain.
The Fed made three interest rate cuts in 2025, the most recent on December 10, which brought rates down to between 3.5% to 3.75%.
However, projections suggest there will only be one additional cut in 2026 despite rates remaining at their highest levels since 2008.
Key factors influencing policymaker decisions are labor market data, inflation trajectory, particularly from tariff impacts, and overall economic growth.
The central bank will also get a new chair when Jerome Powell’s tenure ends in May, and President Donald Trump has already been shortlisting candidates who are most likely to be dovish.
US rates remain at an 18-year high despite three cuts this year. Source: Macro Trends
What will the Fed do in early 2026?
The Fed’s next meeting on January 27 and 28 will be pivotal as it is the first chance for the Fed’s governors to update guidance, which could set the tone for the quarter.
CME Group shows investors predict only a 20% probability of another 25 basis point rate cut in January, which rises to 45% of a cut at the Fed’s meeting in mid-March.
The Dot Plot shows divisions
The December 2025 dot plot, showing each policymaker’s interest rate projection, shows remarkable division, with equal numbers projecting zero, one, or two rate cuts, creating significant uncertainty for markets as 2026 begins.
The chart provides transparency into Fed thinking, but the projections frequently change as new economic data emerges.
Current median projections for the end of 2025 are 3.6%, essentially the current rate, and 3.4% by the end of 2026, which indicates only one cut for 2026.
December Dot Plot shows divisions on where policymakers think rates will be at the end of 2026. Source: Federal Reserve
Analysts at Charles Schwab said after the Fed’s cut in December that the “updated projections were not particularly hawkish,” with 12 of the 19 policymakers projecting at least one more cut next year.
Analysts hope for two cuts in 2026
CoinEx Research chief analyst Jeff Ko told Cointelegraph that the Fed “faces significant internal divisions,” and the dot plot shows a “wide dispersion of views and no clear consensus on the path for interest rates in 2026.”
“In my view, the Fed is likely to deliver two rate cuts in 2026. The Fed will probably take a break in January, followed by one rate cut in March, which would fall within the remainder of Powell’s term as Chair, running through May.”
“This timing would be justified if labor market conditions remain soft, even as inflation potentially peaks above 3% in Q2. Following the leadership transition, the new Fed leadership is likely to continue a gradual easing cycle through the rest of the year,” he said.
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There are a few scenarios that could play out with the Fed in Q1, Jeff Mei, chief operating officer at the BTSE exchange, told Cointelegraph.
“The base case scenario is that the Fed cuts rates once in Q1 and maintains its current rate of Treasury bill buybacks, which will unleash some liquidity into the market that could be good for crypto inflows,” he said.
“In a bull case scenario where inflation goes down, and unemployment goes up, the Fed would have to move more aggressively, initiating two cuts and stepping up its T-bill buybacks. Crypto markets would benefit as demand for risk-on assets would spike.”
However, the worst-case scenario is if inflation rears its ugly head again and the Fed is forced to halt rate cuts and T-bill buybacks altogether. Such a fear could cause stock and crypto markets to plunge, he added.
Toned down hope for 2026
Justin d’Anethan, head of research at Arctic Digital, told Cointelegraph that most people had big hopes about the end of quantitative tightening and a possible new era of Fed dovishness.
“Most feel disappointed, though, as the Fed seems accommodating but still very cautious,” he added.
“For an asset that essentially hedges reckless central bank policies, the depreciation of fiat currencies and, ultimately, the amount of liquidity in global markets, this more measured approach tones down the euphoric phase most crypto traders are (or were) hoping for.”
Nevertheless, a new chair could shift the Fed’s overall stance on rate policy and its willingness to support risk assets like crypto.
When interest rates are lowered, investors tend to seek higher-risk assets such as crypto, as traditional investments like bonds and term deposits become less attractive. This increases demand and buying pressure, and prices usually follow.
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