Key Highlights
- The Fed cut rates by 25 bps to 3.50–3.75%, marking the third 2025 reduction while noting balanced risks and rising unemployment at 4.2%.
- Markets rallied immediately, with the S&P 500 up 0.8%, Bitcoin briefly topping $93,000, and the Fed announcing $40B/month in T-bill purchases starting this week.
- Crypto markets reacted to the liquidity boost, but skeptics warned the relief rally may fade amid fiscal deficits and a potentially cautious Fed path in 2026.
The Federal Reserve delivered its widely expected December rate cut on Wednesday, lowering the target range for the federal funds rate by 25 basis points to 3.50–3.75%. The move marks the third consecutive reduction in 2025 and brings the benchmark rate to its lowest level since early 2023.
In its official statement, the Federal Open Market Committee (FOMC) noted that economic activity continues to expand at a “moderate” pace, but the labor market has cooled further, with the unemployment rate rising to 4.2%. Inflation remains “somewhat elevated” above the Fed’s 2% target.
For the first time in this easing cycle, the committee described risks to both employment and inflation as “roughly in balance,” a subtle shift that suggests policymakers may slow the pace of future cuts.
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months,” the statement reads.
Market reaction to rate cuts
The global markets reacted immediately to the Fed’s decision, and asset managers started rethinking their strategies by quickly buying and selling assets. The S&P 500 closed 0.8% higher, 10-year Treasury yields dipped to 4.12%, and Bitcoin surged more than 2% within minutes of the 2:00 p.m. ET announcement, briefly topping $93,000 before settling down, as per CoinMarketCap data.
Ethereum and other major altcoins posted gains of 3–6% in the hours that followed.
Crypto traders and analysts interpreted the dovish tilt as rocket fuel for risk assets. Popular crypto accounts celebrated the decision as validation that the Fed is once again providing liquidity that ultimately flows into speculative markets.
“FOMC cuts by 25 bps as expected,” noted Nick Rimiraos of The Wall Street Journal, adding that the “Fed will start ‘reserve management purchases’ this week, beginning at $40 billion per month in T-bills.”
Though not everyone was cheering for rate cuts. Several prominent voices in the community warned that the celebration may be short-lived as a 25 bps cut when unemployment is rising, and fiscal deficits are exploding, isn’t hawkish—”it’s just less bad.”
By Thursday morning, Bitcoin had pared some gains and traded near $94,500 as investors digested Fed Chair Jerome Powell’s press conference remarks that “the economy remains in a good place” and that further cuts will be data-dependent.
The December cut concludes a year in which the Fed slashed rates by a cumulative 100 basis points. Whether crypto’s post-announcement pump marks the start of a new bull leg or simply a relief rally ahead of tighter financial conditions in 2026 remains the market’s biggest open question.
Also read: Singapore Tops 2025 Global Crypto Adoption Rankings: Bybit Report
