Goolsby said there will be a rate cut this year, but the market no longer believes it.

Federal Reserve’s Goolsbee latest statement suggests that the Fed may cut interest rates this year, but the prerequisite is data confirmation of the expectation. This seemingly dovish signal contrasts interestingly with current market realities: although the latest inflation data has indeed improved, investors’ expectations for a rate cut in the near term are actually declining, and capital flows in the cryptocurrency market are already preemptively reacting to this shift.

Goolsbee’s “Conditional Rate Cut” Theory

Goolsbee’s remarks reveal the Fed’s internal attitude toward a rate cut this year, but the key phrase is “needs data confirmation.” This is not a firm commitment but a probabilistic expectation. In other words, the Fed’s current stance is: if economic data continues to support a rate cut, there will be a cut this year; if the data turns, plans will change.

This way of expressing reflects the Fed’s cautious attitude at present. Looking at recent inflation data, there are indeed some positive signals. The US December unadjusted CPI year-over-year was 2.7%, in line with expectations, but core CPI was 2.6%, below the expected 2.7%, indicating inflation pressures are easing. Logically, this should support rate cut expectations.

Market Expectations Moving in the Opposite Direction

However, the actual market response is more complex. According to the latest interest rate futures data, the probability of the Fed holding rates steady in January is as high as 95.6%, and the market expects rates to remain unchanged over the next two to three months, with the next cut possibly not until June or later. This indicates that market expectations for a near-term rate cut are actually decreasing.

This “talk of rate cuts, market disbelieves” phenomenon has several reasons:

• Although inflation has improved, it has not yet reached fully satisfactory levels; the Fed needs more data to confirm the trend.
• Political interference. Fed Chair Powell faces a Department of Justice investigation, which to some extent increases monetary policy uncertainty.
• Concerns over the Fed’s independence, especially amid criticisms from the Trump administration and discussions of potential personnel changes.

Cryptocurrency Market Is Already Adjusting

From the capital flows in the crypto market, it’s evident that the market is preemptively reacting to the declining rate cut expectations. According to recent data, crypto investment products experienced a $454 million outflow last week, the largest weekly outflow since mid-2023. Bitcoin and Ethereum faced massive outflows of $404.7 million and $116.1 million, respectively.

Interestingly, funds haven’t completely exited the crypto market but are rotating. Last week, XRP attracted $45.8 million in new institutional inflows, a 428% surge from the previous week. Solana and Sui also gained inflows against the trend. This indicates that the market is adjusting risk exposure rather than panicking entirely.

Limited Probability of Rate Cuts in the Short Term

Based on current information, Goolsbee’s rate cut expectations are more of a broad outlook for the year rather than a specific commitment for the near term. The probability of the Fed maintaining rates at the January meeting is already very high, and it’s unlikely to see rate cuts in the coming months. The actual window for a rate cut may not open until inflation data stabilizes further and political clarity improves, likely not before Q2.

In this context, the market’s declining expectations for rate cuts are a reasonable reaction. The outflow of crypto funds is also a natural result of this expectation adjustment, rather than a loss of confidence in digital assets themselves.

Summary

Goolsbee’s rate cut expectation is conditional, and market expectations for a near-term cut are actually decreasing. Although inflation data has improved, the Fed needs more data for confirmation, and political factors add uncertainty. The crypto market has already been adjusting expectations in advance; funds are rotating rather than fleeing. The probability of a rate cut in the short term is limited, and the real window for cuts may not open until Q2 or later, meaning the current market adjustment will likely continue for some time.