Federal Reserve collectively stands firm against the market: no rate cuts until inflation breaks below 2%, crypto market rate cut dreams shattered

The Federal Reserve has shifted from the “ATM” of rate cut expectations to the “tight clamp.” Chicago Fed President Goolsbee stated on Thursday that, given the stability of the labor market, the central bank should focus on reducing inflation, with considerable room to lower interest rates—provided there is convincing evidence that inflation is returning to the 2% track. While this stance appears moderate, it actually serves as a cold shower for the markets: rate cuts may happen this year, but not now.

Inflation First, Rate Hike Pause

Goolsbee’s core logic is clear: strong employment is not the problem; inflation is. The current labor market remains robust, and the most important issue is bringing inflation back to 2%. This statement seems simple, but the policy implications behind it are significant: as long as inflation has not clearly returned to the target, rate cuts are a luxury.

Supporting data backs this judgment. According to the latest statistics, the US December core CPI rose 2.6% year-over-year, with the overall CPI reaching 2.7%, both exceeding the 2% target. While these levels are relatively moderate, they are still not ideal for the Fed.

Collective Statements from Fed Officials

Goolsbee is not an isolated case. Recent reports indicate that several Fed officials emphasized policy independence on Wednesday, while signaling a pause on rate cuts. Minneapolis Fed President Kashkari explicitly stated that with inflation still high and the economy performing steadily, rates should remain unchanged; Atlanta Fed President Bostic emphasized that there is still a long way to go to reach the 2% inflation target, and policy must remain restrictive; New York Fed President Williams expressed similar views.

This rare “collective voice” also has a political backdrop. In the face of the US Department of Justice investigation into Powell, Fed officials have collectively defended monetary policy independence, stating that political or judicial pressures should not interfere with policy decisions. Goolsbee explicitly stated that “the Fed’s independence is crucial for the US’s long-term inflation rate.”

Market Expectations Collapse

What does this mean for the markets? Wall Street’s previous expectations of rate cuts at the January FOMC meeting are nearly shattered. Several officials’ statements indicate that the January meeting is very likely to keep rates unchanged. The market generally expects the Fed to possibly restart rate cuts only after June at the earliest.

This timing gap is critical. The Fed’s three consecutive rate cuts in 2025 totaling 75 basis points fueled a rally in US stocks, cryptocurrencies, and other risk assets. But from January to June, markets will have to endure five months of a “rate cut vacuum.” This puts substantial pressure on liquidity-dependent assets—especially cryptocurrencies.

Key Influencing Factors

• Inflation data becomes critical: Each upcoming CPI report will be a market focus; any signs of approaching the 2% target could reignite rate cut expectations.
• Diminished role of employment data: Fed officials have made it clear that employment is not the current focus, reducing the market impact of employment data fluctuations.
• Persistent political pressure: Powell’s term runs until May, with political variables still present, but collective statements from officials indicate a strengthening of policy independence.
• June as a watershed: If inflation does not improve significantly, rate hikes may be further delayed; if CPI data improves, June could become a rate cut window.

Summary

The Fed’s shift from a “rate cut cycle” in 2025 to an “inflation first” approach in 2026 marks a substantial policy change. Goolsbee and other officials’ statements are clear: until inflation returns to 2%, rate cuts are illusory. Markets should prepare for a long period of high interest rates, at least until June. For the cryptocurrency market, this means the liquidity-driven upward momentum is weakening, and fundamentals and real-world utility are becoming more important. The key is to monitor inflation trends and whether the Fed adjusts its stance in response to economic data.