The Federal Reserve cut interest rates by 25 basis points as expected in December, lowering the target range to 3.5%-3.75%, but the market sensed different signals. Powell's cautious wording—"interest rates are approaching neutral"—led many to anticipate a possible pause in rate cuts in January. Goolsbee and Schmiedt voted against the move, advocating to keep rates unchanged; meanwhile, Milan was more aggressive, calling for a 50 basis point cut in one go. This internal disagreement actually reflects the real dilemma faced by the Federal Reserve.

Don't be fooled by the surface "hawkish shift." Institutional analysis generally points out that the core logic of the Fed has not changed—stabilizing the employment market remains the top priority. Even if tariff pressures might push inflation higher, they still prefer to address labor market weakness first. The December rate cut is not a sudden turnaround but the result of this ongoing logic.

The latest CPI data fell to 2.7%, reinforcing market expectations for subsequent rate cuts. Institutions predict there could be two more 25 basis point cuts in March and June next year, bringing the interest rate to the 3%-3.25% range. A third rate cut might also occur in the second half of the year. With the new Fed Chair taking office in May, if a more dovish policy stance is favored, the easing cycle could be extended further.

But uncertainties definitely exist. The new policy stance on tariffs and the Trump administration's influence on the Fed Chair selection could rewrite this script. If inflation is driven up by tariffs, the Fed might be forced to hit the brakes. In 2026, the global crypto market will be watching closely to see how the Fed's move unfolds.