In the latest turn of events, global financial markets—and particularly the cryptocurrency sector—have entered a more cautious phase as the probability of a rate cut by the Federal Reserve (Fed) in December has fallen below 50%, signalling growing investor concern and elevated downside risk.
Falling Chances of a December Rate Cut
Data from the CME Group indicate that the chance of a 25‑basis‑point reduction in the federal funds rate at the upcoming December meeting of the Federal Open Market Committee (FOMC) now sits at approximately 45.9%.
This is a marked drop from early November, when the odds exceeded 67%.
The shift reflects investor recalibration: earlier expectations envisaged multitudes of cuts in 2025 (with firms such as Goldman Sachs and Citigroup predicting up to three 25‑bps reductions next year).
Why This Matters for Digital Assets & Markets
Monetary policy actions by the Fed have profound implications for asset prices, especially for risk‑sensitive arenas like the cryptocurrency market. When rates are high or tightening, liquidity tends to constrict and investors may pull back from riskier investments. A signal that rate cuts are less likely—or further away—can weigh on sentiment.
In this context, the reduced likelihood of a December cut has contributed to a negative tone across crypto markets, with many assets in decline amid heightened uncertainty.
Fed Commentary & Market Sentiment
Fed Chair Jerome Powell has openly cautioned that a December rate cut is “far from certain”, noting the complexity of current monetary‑policy dynamics.
Adding to the concern, veteran investor Ray Dalio has warned that the Fed appears to be easing policy precisely when asset valuations are at elevated levels, unemployment is low and credit spreads are compressed—a pattern that historically can precede elevated risks of bubbles or sharp corrections.
Such commentary has amplified investor caution, particularly in sectors where expectations of easing policy had previously been baked into valuations.
What to Watch Going Forward
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Next FOMC Outcomes ― Whether December does bring a cut or not will hinge on incoming inflation, labor‑market data, and credit‑market signals.
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Liquidity & Risk Flows ― If rate cuts are delayed further, risk assets (including cryptocurrencies) may face additional pressure as funding costs remain elevated.
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Sentiment Shifts ― Markets are sensitive to forward‑looking clues; even a signal of delayed easing can trigger re‑pricing of risk.
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Macro Correlations ― Given the connectedness of crypto to overall risk appetite, weakness in equities or credit could compound pressure on digital‑asset markets.
Conclusion
The drop in the probability of a December rate cut by the Fed has reinforced a cautious mindset among investors. As the view of smoother or sooner easing fades, markets—especially in the crypto space—are grappling with the prospect of restrained liquidity and lingering uncertainty. While not necessarily heralding a crash, the current set‑up suggests a more challenging backdrop for gains in risk assets. Investors should monitor policy signals, macro data, and market flows closely in the weeks ahead.
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