Markets were pricing a very low probability of a rate cut at the upcoming FOMC meeting.
Why such a low probability? Despite falling inflation and a weaker December jobs report, concerns over persistent price pressures kept the Fed on hold.
This high-rate outlook continues to weigh on risk assets, such as Bitcoin [BTC] and other cryptocurrencies, raising the opportunity cost of non-yielding investments.
A mere 5% probability
According to the CME FedWatch Tool, there was a mere 5% probability of a 25 basis point (bps) Federal Reserve rate cut at the upcoming FOMC meeting.
Source: CME FedWatch Tool
Notably, Polymarket data also reflected a 95% probability that the Fed would hold rates steady.
Source: Polymarket
What’s driving the Fed’s stance? Inflation remained the primary concern for the Federal Reserve, with core inflation still above the 2% target.
As a result, the Fed maintained its cautious stance, and expectations for immediate rate cuts remained minimal.
Inflation drops, yet concerns persist
U.S. inflation dropped to 2.7% at the end of 2025, marking a five‑month low. While this raised speculation about potential rate cuts, persistent price pressures in housing and services remained a concern.
On the 15th of January 2026, initial jobless claims came in lower than expected at 198,000. However, the December jobs report showed only 50,000 new jobs, fueling worries about a cooling labor market.
Even so, inflation remains the Federal Reserve’s primary focus. The recent decline offered some relief, but ongoing price pressures continue to keep the Fed cautious.
Could inflation shifts spark crypto’s next bull run?
Inflation eased slightly in December, but not enough to justify a rate cut.
For the Federal Reserve to reconsider, inflation would need to fall more sharply, especially in key areas like housing. Until then, the Fed is likely to maintain its cautious stance, waiting for a more dramatic and sustained decline.
This leaves the door open for future inflation shifts to spark a surprise move by the Fed, which could in turn influence crypto market sentiment.
Final Thoughts
- The Fed’s “wait-and-see” approach remains, with minimal rate change unless inflation drops significantly.
- Continued Treasury bill purchases could reinforce the Fed’s cautious stance, maintaining market uncertainty for risk assets like Bitcoin, Ethereum, and other cryptos until inflation shows more substantial improvement.