Key Takeaways
- Federal Reserve policymakers are divided over whether to lower interest rates in December.
- Fed officials must balance support for the labor market against the risk of rising inflation.
- Lower interest rates tend to support stronger crypto markets.
With crypto prices struggling to shake off a bearish spell that has gripped the market since mid-October, a cut to U.S. interest rates could help reverse the trend.
But minutes from a meeting of the Federal Reserve’s Federal Open Market Committee (FOMC) at the end of October suggest officials are split on whether to cut interest rates for a third time in 2025.
Fed Rate-Setters Divided Over Rate-Cut
When the FOMC met on Oct. 29, they agreed to lower interest rates by 25 basis points (bps) to 3.75%–4.00%.
The reduction, which followed a similar one in September, was broadly anticipated by the market.
However, when it comes to the question of a third rate cut in December, officials “expressed strongly differing views,” minutes published on Wednesday, Nov. 19, reveal.
For now, the Fed is playing a delicate balancing game. FOMC members agreed that a further rate cut will be needed at some point to ease pressure on the labor market.
However, more hawkish officials are cautious of moving too fast unless inflation falls before the December meeting.
Before Wednesday, Polymarket users rated the likelihood of a third rate cut in 2025 slightly higher than the possibility of rates remaining unchanged, with around 55% versus 45% anticipating a reduction.
After the minutes were published, those numbers were reversed, with the prediction market rating the odds of no change at nearly 70%.
No Saving Grace
According to conventional wisdom, lower interest rates are beneficial for the crypto market, as they attract investors seeking higher returns in riskier asset classes.
For instance, cuts in the second half of 2019 helped propel Bitcoin’s recovery from its December 2018 bottom as the Fed, European Central Bank (ECB), and People’s Bank of China (PBOC) started to ease monetary policy.
When the Fed announced a surprise 50-point cut in March 2020, crypto initially crashed, dragged down by a broader panic that affected all markets.
However, it didn’t take long before a bullish recovery took hold.
In retrospect, lower interest rates helped catalyze the biggest bull run in the history of crypto, with the price of Bitcoin climbing from around $5,000 in March 2020 to a new all-time high of $69,000 by November 2021.
Now, as the December FOMC meeting approaches, the Fed once again has the power to catalyze a market rally.
However, without a clear signal, crypto investors may have to wait for any relief.
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James Morales is CCN’s blockchain and crypto policy reporter. He has been working in the news media since 2020, writing about topics such as payments, banking and financial technology. These days, he likes to explore the latest blockchain innovations and the evolving landscape of global crypto regulation.
With an educational background in social anthropology and media studies, James uses his platform as a journalist to explore how new technologies work, why they matter and how they might shape our future.
