Fed: The probability of a cut in December drops below 50%

Markets hate unpredictability. However, in the space of a few days, their certainties collapsed. The probability of a rate cut by the Fed in December, previously the majority, is now less than 50%. This sudden change of course has reignited tensions across all asset classes. In the crypto ecosystem, already strained by a corrective phase, this renewed uncertainty acts as a catalyst for volatility.

Markets revise their bets downwards

The scenario of monetary easing in December still seemed likely at the beginning of November. However, in the space of a few days, the consensus has crumbled. The probability of a Fed rate cut in December has fallen below 50%, a reversal of trend that is starting to worry the markets.

Here is the essential facts to remember:

• 67% of investors expected a drop of 25 basis points at the FOMC meeting in December, according to CME Group data. This probability has now fallen to 45.9%;

• This turnaround is linked to a deterioration in market sentiment and a more cautious assessment of the economic outlook by the Federal Reserve;

• Jerome Powell, Chairman of the Fed, dampened hopes for rapid easing, declaring in October: “an additional reduction in the key rate at the December meeting is not a given, far from it. Monetary policy is not on a predefined path ».

This statement fuels the idea that the Fed could keep rates high for longer, especially if economic indicators remain strong. Ray Dalio, founder of Bridgewater Associates, expressed his reservations about the Fed's current strategy: “the Fed stimulates the economy in a bubble context, which is characteristic of over-indebted economies close to hyperinflation and monetary collapse”.

This context reinforces concerns about a poorly calibrated monetary policy, in the face of an American economy marked by historically high asset prices, a low unemployment rate, and narrow credit spreads.

All of this on-chain data contributes to reorienting the expectations of investors, who no longer consider a drop in rates as a central scenario in the short term. Markets, including crypto markets, are now adjusting their positions in a climate of greater uncertainty.

The crypto market weighed down by the absence of a monetary catalyst

While the crypto market had largely integrated the October rate cut, it had no positive effect on prices. On the contrary, the decline continued, as illustrated by the evolution of the main cryptos in recent weeks.

According to Matt Mena, analyst at 21Shares, this drop had been entirely anticipated by investors, which explains the absence of a bullish reaction to its announcement. This phenomenon reflects a loss of momentum in the crypto ecosystem, deprived of a clear monetary engine in the short term.

The diminishing probability of further monetary easing in December reinforces this feeling of stagnation. Less potential liquidity means less capital injected into risky assets like cryptos, which further weighs on prices already under pressure.

In this context, the absence of a decline in December could prolong the current consolidation phase, while awaiting clearer signals from central bankers. If analysts from Goldman Sachs and Citigroup continue to anticipate three rate cuts in 2025, this prospect remains distant for markets looking for immediate support.

In the short term, investors must deal with a less favorable environment than expected, where monetary catalysts are rare and uncertainty dominates. In the absence of an employment report due to the shutdown, the Fed's caution in the face of inflation and macroeconomic imbalances reveals a scenario where patience will be required. For the crypto market, this probably means another few weeks, or even months, without strong momentum.