Federal Reserve's Divided 2026 Outlook Creates Uncertainty for Cryptocurrency Markets

Fed Divisions Signal Uncertain Path for Crypto

The US Federal Reserve's influence on cryptocurrency markets is expected to continue into 2026 as sharp divisions among policymakers over future interest rate cuts create uncertainty for digital asset investors^[1].

The Fed made three interest rate cuts in 2025, most recently on December 10, bringing rates down to between 3.5% to 3.75%^[1]. However, current projections suggest only one additional cut in 2026 despite rates remaining at their highest levels since 2008^[1].

December Dot Plot Reveals Deep Split

The December 2025 dot plot, which shows each policymaker's interest rate projection, revealed remarkable division with equal numbers projecting zero, one, or two rate cuts^[1]. Current median projections show 3.6% by the end of 2025 and 3.4% by the end of 2026, indicating only one cut for next year^[1].

Analysts at Charles Schwab noted after the December cut that the "updated projections were not particularly hawkish," with 12 of the 19 policymakers projecting at least one more cut next year^[1].

Analysts Anticipate Two Rate Cuts

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"^[1].

"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," Ko said^[1].

Jeff Mei, chief operating officer at the BTSE exchange, outlined multiple scenarios for the first quarter. "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 told Cointelegraph^[1].

Market Expectations and Leadership Transition

CME Group data shows investors predict only a 20% probability of a 25 basis point rate cut in January, rising to 45% for the Fed's mid-March meeting^[1]. Polymarket data separately showed just a 15% probability of a January rate cut, while confidence is higher for March with a 52% chance^[2].

The central bank will get a new chair when Jerome Powell's tenure ends in May, with President Donald Trump already shortlisting candidates who are most likely to be dovish^[1].

The Fed's December minutes, released on Tuesday, indicate openness to adjusting rates. "The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals," the minutes said^[2].

Impact on Crypto Markets

Justin d'Anethan, head of research at Arctic Digital, noted that most people had big hopes about the end of quantitative tightening and possible Fed dovishness. "Most feel disappointed, though, as the Fed seems accommodating but still very cautious," he said^[1].

"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," d'Anethan added^[1].

Bitcoin is down 29.3% from its October all-time high, trading at $88,439 at the time of publication^[2]. The Crypto Fear & Greed Index has been in "Extreme Fear" territory since December 13, posting a score of 23 on Wednesday^[2].

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, increasing demand and buying pressure^[1].