Key conclusions

• The Dec. 9-10 Fed meeting is extremely vital as markets wait to see whether there will be another interest rate cut before Christmas, which will impact bonds, stocks and cryptocurrencies.

• After two cuts in 2025, interest rates are currently at 3.75-4.00%. Labor market weakness and lower inflation support further monetary easing, but officials remain divided because inflation risks have not been fully removed.

• A cooling labor market, easing inflation and the end of quantitative tightening may justify another cut and align it with year-end liquidity needs.

• Stable inflation, gaps in economic data due to the government shutdown and a divided Fed could prompt policymakers to keep interest rates unchanged in December.

When the US Federal Reserve meets on December 9-10 to decide on interest rates, it will not be another routine meeting. Markets are watching closely to see what direction policymakers choose. Will the Fed cut interest rates again before the holidays? A cut before Christmas Eve could send waves across bonds, stocks, credit markets and cryptocurrencies.

The article explains why the Fed’s pre-holiday meeting is vital and presents the factors for or against cutting interest rates. It also highlights what to watch in the coming weeks and how the Fed’s move could impact cryptocurrencies and other financial markets.

Background to the December interest rate cut

Central banks typically lower interest rates when inflation falls, economic growth slows or financial conditions become too tight. In behind schedule October, the Federal Reserve cut interest rates by 25 basis points, setting the federal funds target range at 3.75%-4.00%, the lowest level since 2022. This move followed another 25 basis point cut in September 2025, making it the second time the Fed has cut interest rates this year.

This decision came amid clear signs of a cooling labor market. October saw one of the worst total monthly layoffs in more than two decades, according to many labor markets reportsreinforcing concerns about deterioration of working conditions. The Fed’s October statement echoed this trend, saying that risks to employment had increased even as inflation remained somewhat elevated.

Fed Chairman Jerome Powell at the press conference accented that the December cut “is not certain.” But economists at Goldman Sachs still think so to expect reduction, pointing to clear signs of labor market weakness. Fed officials remain divided, with some emphasizing the risk of inflation and restricted opportunities to further ease monetary policy.

A December rate cut is possible, but not guaranteed.

Factors supporting a potential rate cut

There are several reasons why the Fed might decide to cut interest rates:

• Cooling the labor market: Private sector data shows softer hiring, rising layoffs and a slight enhance in unemployment.

• Mitigating inflation: Inflation is still above target but continues to trend down, giving the Fed more flexibility to ease policy.

• End of quantitative tightening: The Fed announced that it will stop reducing the size of its balance sheet on December 1.

• Deadline before the holidays: A rate cut would align with year-end liquidity needs and lend a hand set expectations for 2026.

The case for postponing Fed action

Several factors suggest the Fed may delay rate cuts in the near future:

• Sticky inflation: According to the latest Fed report statementthe inflation rate remains “somewhat elevated.”

• Data vacuum: The U.S. government shutdown delayed key employment and inflation reports, making policy assessment more hard.

• Committee Division: Federal Reserve officials are divided on the right path forward, encouraging a more cautious approach.

• Narrow room for mitigation: After multiple cuts this year, some analysts say policy is already close to neutral.

Did you know? In March 2020, the Fed lowered interest rates to near levels zero in response to the Covid-19 crisis. At the meetings on March 3 and 15, it reduced interest rates by a total of 1.5 percentage points.

What to monitor before December

These factors will likely influence the Fed’s upcoming policy decision on interest rate cuts:

• Employment in the non-agricultural sector and unemployment: Is the job market still slowing down?

• Inflation data: Any unexpected enhance in inflation will reduce expectations for monetary easing.

• Financial conditions and market signals: Are credit spreads widening and is overall market liquidity tightening?

• Fed statement: Differences of opinion within the Federal Open Market Committee (FOMC) could affect the outcome.

• External shocks: Trade developments, geopolitical risks or sudden supply disruptions could change the Fed’s approach.

Did you know? Historically, U.S. stocks have gained about 11% in the 12 months after the Fed began cutting interest rates.

How a Federal Reserve Cut Could Affect Cryptocurrencies

Fed interest rate cuts enhance global liquidity and often push investors toward riskier assets like cryptocurrencies in search of higher returns. Bitcoin (BTC) and Ether (ETH) tend to benefit from greater risk appetite and rising institutional inflows. Lower lending rates in decentralized finance (DeFi) are also encouraging greater leverage and more trading activity. Stablecoins may be used more in payments, although their profitability advantage is diminishing as interest rates fall.

However, if a rate cut is interpreted as a signal of a recession, the cryptocurrency could experience stock-like volatility. Markets may see an initial boost due to easier liquidity, followed by a decline due to broader macroeconomic concerns. If global financial conditions loosen instead, the environment could support further demand for cryptocurrencies.

Lower borrowing costs make it easier for individuals and institutions to take investment risks, which may enhance interest in digital assets. As more money flows into the sector, crypto companies can create better tools and services, helping the industry connect more seamlessly with the rest of the financial system.

Did you know? When the Fed lowers interest rates, short-term bond yields tend to fall first, creating opportunities for investors tracking the movement of the yield curve.

Consequences of the Fed rate cut for other financial sectors

Here are the potential impacts of the Fed cutting interest rates:

• Bonds and yields: Miniature-term yields are likely to decline as markets adjust their expectations. The yield curve could steepen if long-term yields remain more stable than short-term yields, which could signal confidence in future growth. If a cut is seen as a sign of recession risk, long-term yields could also fall, flattening or even inverting the curve.

• US dollar and global currencies: A rate cut generally weakens the dollar as interest rate differentials narrow. This often supports emerging markets and commodity exporting countries. If the cut is driven by concerns about economic growth, safe-haven demand may temporarily push the dollar up.

• Actions: A cut in interest rates before Christmas Eve could send U.S. stocks higher if investors view it as a sign of confidence in a tender landing. A tender landing means a cooling of inflation with a stable labor market. If growth concerns instead drive cuts, corporate earnings could come under pressure and defensive sectors could outperform cyclical sectors.