The impact of this policy move goes far beyond a 25 basis point rate cut

On December 10, the Federal Reserve lowered the benchmark interest rate by 25 basis points, marking the third consecutive rate cut and a cumulative adjustment of 75 basis points since September. However, the implications of this decision are far more profound than the surface numbers suggest. Beneath the surface, this meeting exposed the growing divisions within the Federal Open Market Committee, escalating political pressures, and the rapid deterioration of consensus on the direction of monetary policy.

This meeting saw three dissenting votes, the highest number of dissenting votes in a single meeting since 2019. One board member has voted against the decision for three consecutive times, while another has done so for two consecutive times, indicating that Powell's ability to maintain unity within the committee is weakening. As internal cohesion declines, the clarity of the Fed's policy direction is also affected. Investors rely on the committee's consensus to interpret future interest rate paths, and the December meeting indicates that this reliability is diminishing.

At the core of the divisions is a tricky macroeconomic dilemma: inflation has stopped rising significantly, while employment indicators continue to weaken. In a typical economic cycle, data often points in one direction—either clearly leaning towards easing or clearly leaning towards tightening. But now, with price pressures remaining high and job growth slowing, policymakers find themselves in a stalemate. Insufficient tightening could lead to persistent inflation; excessive easing could exacerbate unemployment issues. Historically, such intense internal divisions only occur during periods of extreme economic uncertainty.

The dot plot conveys a clearer message

If the previous divisions were not enough, the updated dot plot further exacerbated market caution. Current forecasts indicate that there will only be one rate cut each in 2026 and 2027, with the long-term policy rate remaining around 3%. This is clearly more conservative than what investors had expected. Despite weak labor market data, the forecast results have changed little compared to the update in September, highlighting the significant divisions among committee members.

Slowing the pace of easing means that the Fed is unwilling to commit to a smooth or sustained rate reduction. Instead, policymakers seem concerned that the economy may not withstand rapid easing or that persistently high inflation may not support easing policies. Regardless of the reasons, the message is clear: future easing policies will not follow the predictable linear patterns of previous cycles.

Powell shifts to a neutral, cautious framework

Jerome Powell's press conference heightened market uncertainty. Unlike previous meetings, he did not hint at further rate cuts. He described the current policy as "in a good place" and noted that interest rates are currently within a neutral range. This shift is significant. If the Fed views its policy as neutral, it means it believes there is no need for further easing at this time and intends to respond based on economic data rather than adhering to a predetermined direction.

Powell repeatedly emphasized that the Fed will not follow a set policy path but will make decisions based on the specifics of each meeting. This is in stark contrast to the market's expectation of a smooth, sustained easing cycle over multiple quarters. In fact, Powell hinted that the trajectory of interest rates may become uneven: there could be a period of unchanged rates followed by cuts, or even a pause in rate hikes, depending on inflation and employment conditions.

This approach reflects the overall chaotic situation at the time. With severe divisions among committee members, high inflation, slowing job growth, and increased political scrutiny, Powell is treading carefully. He is avoiding panic while not providing any roadmap. Now, the lack of forward guidance itself has become a source of market volatility.

Political front: Trump pushes for accelerated easing

Political pressure adds another layer of complexity. President Donald Trump has publicly criticized the magnitude of the rate cuts, arguing that they should be at least doubled. Since the president cannot directly instruct the Fed, public statements have become his channel for exerting influence. His dissatisfaction with the pace of easing has become increasingly evident.

More importantly, Trump announced that he would expedite the selection process for a new Fed chair. Powell's term will end in May 2026, meaning he has only three meetings left to set policy. Kevin Warsh has emerged as a frontrunner, but Christopher Waller, Michelle Bowman, and BlackRock's Rick Rieder are still in the running. Given Trump's unpredictability in personnel decisions, the market cannot remain stable until an official nomination is announced.

The impending leadership transition exacerbates policy uncertainty. The market must simultaneously interpret Powell's remaining decisions and predict the policy framework of his successor. If Trump ultimately chooses someone who aligns more closely with his aggressive easing preferences, the entire interest rate path beyond 2026 could change dramatically.

Why is the market calm in the short term but facing higher risks in the future?

Despite deeper concerns, the market initially welcomed the rate cut. Powell assured that no one on the committee was considering rate hikes, which boosted market sentiment and triggered a rally. Stock markets rose, and volatility eased. However, this optimism is likely to be temporary.

The mid-term situation is now more complex. With divisions within the Fed and Powell avoiding making clear commitments, the path of easing policy is harder to predict than at any time during this cycle. This uncertainty often translates into broader market volatility. Additionally, the upcoming leadership change introduces a political variable that investors cannot price accurately.

For Bitcoin and other digital assets, the predictability of liquidity conditions is crucial. While the confirmed rate cuts may boost short-term market sentiment, the ambiguity surrounding the next steps in monetary policy could prolong the current consolidation phase. The cryptocurrency market may not experience a significant upward trend but could face a longer period of sideways trading as market participants await clearer signals.

Investors now need to closely monitor two parallel forces: Powell's remaining decisions and the political evolution surrounding the next Fed chair. Both forces will influence market expectations, especially as monthly economic data continues to reshape relevant discussions.

A period filled with uncertainty

The December meeting was not just a routine policy adjustment. It exposed the dilemmas faced by the monetary policy institution in dealing with conflicting economic forces, growing political influence, and weakening internal coordination. This meeting also laid the groundwork for a potentially tumultuous transition that could reshape the future of U.S. monetary policy.

The short-term economic situation remains stable, but structural uncertainty is rising. The Fed is shifting from a predictable easing cycle to a phase characterized by greater volatility and reliance on economic data. With inflation still high, unemployment rates declining, and leadership changes on the horizon, the future path is more unclear than at any time in recent years.

Until the situation clarifies—whether through improved data, internal consensus, or a change in chair—the market, including Bitcoin, may continue to trade in a turbulent and uncertain environment.

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