The Fed is waiting for Thursday – will the interest rate cuts align with the market plan?

The market is waiting for one of the key decisions of this year. On Thursday morning (GMT+8), the Fed will announce its final interest rate decision of 2024. According to CME FedWatch data, the chance of a 25 basis point cut exceeds 85% – almost a certainty. But before you start planning celebrations, there’s something important you should know: when everyone knows that rate cuts are imminent, the cut itself ceases to be what drives the market.

The cut is already in the past for the market – now, the future matters

Imagine the financial market as a guessing game. Asset prices don’t react to what has already happened, but to how reality differs from expectations. If everyone expects a 25bp cut and exactly that cut occurs – well, there’s no volatility tournament.

After the Fed has already cut rates three times in a row (since September) and the market has priced this in, Thursday’s FOMC meeting will not be about the decision to cut itself. The real variable will be what the Fed plans for 2025. Will there be further reductions? How many? How often? These are the questions that will dictate sentiment.

After each FOMC meeting, a chart called the “dot plot” appears – a small diagram where each committee member marks a dot indicating where they believe the rate should be at the end of the year. If the dots are clustered, the Fed has a clear vision. If they are dispersed, it indicates internal disagreements and confusion.

Two camps within the Fed – will they agree on the future?

From the latest September dot plot, something interesting emerges. One group of Fed (8-9 members) wants rates at 3.5%-3.625% in 2025, while another (7-8 members) prefers 3.75%-4.0%. This is not a minor disagreement – it’s a sign that the Fed is divided.

Specifically: if the median is around 3.6%, most expect two more rate cuts next year (along with Thursday’s). But what about 2026? The divisions there are even deeper. Some want to go down to 2.5% (which means 4-5 moves within the year), others resist change and prefer 4.0%. The difference between the most aggressive and the most cautious member is as much as 6 cuts.

Meanwhile, the market has already priced in a more hawkish scenario. CME FedWatch indicates traders expect 2-3 cuts in 2026, while the Fed officially talks about just one. This tension between federal conservatism and market greed will heat up Thursday’s meeting.

Three possible scenarios – three different paths for your portfolio

Scenario one – “no surprises" (most likely)
A 25bp cut happens, the dot plot remains unchanged, Powell says in the press conference that it depends on data – standard diplomatic jargon. The market pays attention and continues to wait. BTC and ETH follow a slight move on Wall Street, then everything returns to the previous trend. Most analysts from Goldman Sachs or Raymond James point to this scenario.

Scenario two – “dovish surprise" (less likely)
A 25bp cut occurs, but the dot plot shifts toward a more dovish stance – showing 2 or more cuts in 2026. Powell talks about labor market risks more than inflation. This would confirm that the Fed is aligning with market expectations. A weaker dollar, better liquidity prospects – BTC and ETH could rise along with stocks. Bitcoin tests recent highs.

Scenario three – “hawkish change" (unlikely)
Despite a 25bp cut, Powell emphasizes that inflation is entrenched in the economy and there’s little room for further rate reductions. Or, an unusual number of dissenting votes appears. The dollar strengthens, liquidity expectations shrink, risky assets fall. BTC may short-term decline, especially altcoins.

The problem – the Fed is working in the dark

Here’s the dramatic element: the Fed itself lacks full clarity. From October 1 to November 12, the US government was suspended for 43 days. During this time, statistical offices closed, data work halted. October’s CPI was canceled, and November’s was postponed to December 18 – a week after Thursday’s FOMC meeting.

What does this mean? When the Fed makes its rate cut decision on Thursday, it will be operating without the latest inflation data from the past two months. It’s like driving a car without a clear view of the road – uncertain. Powell will be cautious with his words. The market will listen to every sentence like a vulture looking for an opportunistic move.

JOLTs today evening – is it important?

Today (23:00 GMT+8), the employment data – JOLTs, the number of job openings in the US – will be released. Sometimes social media overstates its importance, claiming it “supports liquidity.” Honestly, JOLTs is a lagging indicator and doesn’t have a big direct impact on Fed decisions.

The number of job openings has fallen to about 7.2 million, below the 2022 peak of (12 million). Expectations for today’s data are around 7.13-7.14 million – practically unchanged. The narrative of an “overheated” labor market is already dead. This will be one of the “appetizers” before the main course on Thursday.

How will all this affect BTC and ETH?

For years, there’s been a debate – is Bitcoin “digital gold” or a “risky asset”? It turns out it’s behaving more like the latter recently. The correlation of BTC with Nasdaq 100 has risen from nearly zero in 2020 to about 0.4 (sometimes exceeding 0.7). CME even recorded 0.8 over the last 30 days.

But wait – something has changed. In the last 20 days, the correlation of BTC with Nasdaq has been -0.43 – clearly negative. Nasdaq is 2% below its all-time high, while BTC has fallen 27% from October’s peak. Market maker Wintermute describes this as “negative slope” – when the market drops, Bitcoin falls much more; when the market rises, BTC remains sluggish.

This asymmetric risk structure is worth monitoring. If Thursday signals dovishness and stocks go up, Bitcoin may not necessarily rebound. But if hawkish signals appear and stocks fall, BTC could drop even more.

Action plan for the coming weeks

Thursday (December 9-12) – FOMC:
Watch three things: whether the dot plot changes (especially the median for 2026), whether Powell’s tone is cautious or dovish, and whether dissenting voices increase.

December 18 – November CPI:
This will test inflation reality. If data worsen, rate cuts may be threatened, and the Fed’s dovish narrative could come under pressure.

Q1 2026 – Long-term factors:
Powell’s term ends in May, Trump’s tariff policies may continue fueling inflation expectations, and worsening labor markets could force the Fed to accelerate cuts.

In summary: Thursday’s rate cuts by the Fed are already in the past for the market. The future depends on what the Fed says about next year. Control your position, listen carefully, and remember – when everyone is waiting for the same news, surprises rule the day.