Fed Holds Rates Steady as Early 2026 Cut Expectations Fade, Bitcoin and Markets React

The U.S. Federal Reserve held interest rates steady at its latest policy meeting, marking a decisive shift from earlier market expectations that once pointed to an early 2026 rate cut. The decision reflects the central bank’s continued focus on balancing inflation risks with signs of cooling but resilient economic conditions.

In its policy statement, the Fed noted that job gains have remained modest and that the unemployment rate has shown signs of stabilizing, while inflation continues to run somewhat above target levels. This combination has reinforced the Fed’s cautious stance and reduced the urgency for near-term monetary easing. Notably, there were two dissents to the decision, with Fed Governors Christopher Waller and Stephen Miran, both reportedly considered potential successors to Chair Jerome Powell, favoring a 25 basis point rate cut.

Market reaction was relatively muted. Bitcoin hovered just below $89,500 following the announcement, while U.S. equities were little changed. The U.S. dollar strengthened sharply after a previous day’s decline, and gold extended its rally, rising about 3.7% to trade near record highs around $5,300 per ounce. The mixed response highlights how much of the Fed’s decision had already been priced in by investors.

Just two months earlier, traders were divided on the policy outlook, with prediction markets assigning more than a 40% probability to a January rate cut. Those expectations steadily eroded through late November, and by the time of the meeting, markets were pricing in a hold with nearly 99% certainty. This shift effectively cements the view that the Fed will maintain a restrictive policy stance through at least the first quarter.

While early cuts now seem unlikely, expectations for eventual easing remain intact. CME FedWatch data shows only a 16% chance of a cut at the March meeting, rising to roughly 30% by April. Analysts note that the Fed’s messaging will be critical for risk assets, including cryptocurrencies, in the weeks ahead.

Investors are now focused on Jerome Powell’s post-meeting press conference for further guidance on inflation, growth, and the longer-term path of interest rates, which could drive short-term volatility across crypto, equity, and commodity markets.