What would happen if the Fed cut interest rates on Christmas Eve?

Author: Dilip Kumar Patairya, Source: Cointelegraph, Compiler: Shaw Bitcoin Vision

Summary of key points

The Federal Reserve’s December 9-10 meeting is unusually weighty, and markets are eagerly awaiting whether there will be another rate cut before Christmas, which would affect bonds, stocks and cryptocurrencies.
After two interest rate cuts in 2025, interest rates currently remain between 3.75% and 4.00%.A weak labor market and slowing inflation support further easing, but officials remain divided as inflation risks have not yet been completely eliminated.
A cooling job market, slowing inflation and the end of quantitative tightening may provide the basis for another interest rate cut, consistent with liquidity needs at the end of the year.
Remaining high inflation, a lack of economic data due to the government shutdown and disagreements within the Federal Reserve may prompt policymakers to keep interest rates unchanged in December.

On December 9th and 10th, the Federal Reserve will hold a meeting to decide interest rates, which will be more than just a routine meeting.Markets are closely watching what policymakers will choose.Will the Fed cut rates again before Christmas?A rate cut in the run-up to Christmas could send ripples through bond, stock, credit and cryptocurrency markets.

This article explains the importance of the Fed’s pre-Christmas meeting and outlines the factors for or against a potential rate cut.The article also highlights what to watch in the coming weeks and the impact the Fed’s actions may have on cryptocurrencies and other financial markets.

The background to the December rate cut

Typically, central banks lower interest rates when inflation slows, economic growth slows or financial conditions become too tight.In late October, the Federal Reserve cut interest rates by 25 basis points and set the federal funds rate target range at 3.75%-4.00%, the lowest level since 2022.Previously, the Federal Reserve also cut interest rates by 25 basis points in September 2025. This was the second time the Federal Reserve cut interest rates this year.

The move comes as the labor market cools significantly.Multiple labor market reports showed that monthly layoffs in October hit one of the highest levels in more than two decades, fueling concerns about a worsening employment situation.The Fed’s October statement also confirmed this trend, noting that although inflation remains at a high level, employment risks have increased.

At a press conference, Fed Chairman Jerome Powell stressed that a December rate cut was “not a done deal.”However, economists at Goldman Sachs still expect a rate cut and point to clear signs of labor market weakness.Divisions remain among Fed officials, with some highlighting inflation risks and limited room for further easing.

A rate cut in December is possible but not guaranteed.

Factors supporting a potential rate cut

The Fed may decide to cut interest rates for several reasons:

Labor market cooling: Private sector data showed hiring slowing, layoffs increasing and the unemployment rate rising slightly.
Inflation slows: Inflation remains above target but continues to fall, giving the Fed more flexibility in easing policy.
end quantitative tightening: The Federal Reserve announced that it will stop reducing the size of its balance sheet starting on December 1.
Time to cut interest rates before holidays: A rate cut would be consistent with liquidity needs at the end of the year and help set expectations for 2026.

The case for the Fed delaying rate cuts

Several factors suggest the Fed may delay cutting interest rates for some time to come:

Inflation remains high: According to the latest statement from the Federal Reserve, inflation remains at a “relatively elevated” level.
data vacuum: The U.S. government shutdown delayed the release of key employment and inflation reports, making policy assessment more difficult.
Differences of opinion within the committee: Fed officials are divided over the future direction, prompting them to take a more cautious approach.
Loose space is limited: After several interest rate cuts this year, some analysts believe that the current policy is close to a neutral level.

What should you pay attention to before December?

The following factors may influence the Fed’s upcoming decision to cut interest rates:

Nonfarm payroll employment and unemployment rate: Is the job market continuing to slow?
inflation data: Any unexpected rise in inflation will reduce market expectations for easing policy.
Financial conditions and market signals: Are credit spreads widening and overall market liquidity tightening?
Federal Reserve Internal Communications: Differences of opinion within the Federal Open Market Committee (FOMC) could affect the final outcome.
external shock: Trade conditions, geopolitical risks or sudden supply disruptions could alter the Fed’s strategy.

How the Fed’s interest rate cuts will affect cryptocurrencies

Rate cuts by the Federal Reserve increase global liquidity and often prompt investors to turn to riskier assets such as cryptocurrencies in search of higher returns.Bitcoin and Ethereum tend to benefit from stronger risk appetite and increased institutional inflows.Lower decentralized finance (DeFi) lending rates will also encourage more leverage and trading activity.Stablecoins may become more widely used in payments, but their yield advantage shrinks when interest rates fall.

However, if rate cuts are interpreted as signaling a recession, cryptocurrency markets could see stock market-like volatility.Markets may initially rise on loose liquidity and then pull back on macroeconomic concerns.Conversely, if global financial conditions become looser, this could further support demand for cryptocurrencies.

Lower borrowing costs make it easier for individuals and institutions to take investment risks, which may attract more people to pay attention to digital assets.As more money flows into the space, cryptocurrency companies can develop better tools and services that help the industry connect more smoothly to the rest of the financial system.

The impact of the Fed’s interest rate cuts on other financial sectors

Here’s how a Fed rate cut could impact major asset classes:

Bonds and Yields: Short-term yields may fall as markets adjust expectations.If long-term yields are more stable than short-term yields, the yield curve may steepen, which may indicate confidence in future economic growth.If rate cuts are seen as signaling the risk of a recession, long-term yields could also fall, leading to a flattening or even inversion of the yield curve.
US dollar and global foreign exchange: Cutting interest rates typically weakens the dollar because interest rate differentials narrow.This tends to benefit emerging markets and commodity exporters.If the rate cut is driven by concerns about economic growth, safe-haven demand could temporarily push the dollar higher.
stock market: If investors view a Christmas Eve rate cut as a sign of confidence in a soft landing for the economy, it could trigger a rally in U.S. stocks.A soft landing is when inflation cools while the labor market remains stable.But if the rate cut is driven by concerns about economic growth, corporate earnings could come under pressure and defensive sectors could outperform cyclical ones.