Hawkish attack! The Federal Reserve (FED) has an 18% chance of raising interest rates in early 2026, and the Bitcoin pump may come to an end.

The Federal Reserve (FED) lowered the policy interest rate by 25 basis points in October, adjusting the target rate range to 3.75% to 4.00%, but the futures market has ruled out the possibility of further rate cuts in December. Powell emphasized that a rate cut in December “is not a done deal, far from it.” According to CME FedWatch data, the probability of a rate hike in January 2026 is close to 18.5%.

The Federal Reserve (FED) policy takes a sharp turn, December rate cut dream shattered

(Source: CME FedWatch)

Before yesterday's Federal Open Market Committee (FOMC) meeting, many traders anticipated that the Federal Reserve (FED) would cut interest rates for the third time, as inflation had gradually eased, signs of weakness appeared in the labor market, and the FED had already begun to relax monetary policy. Although the FED did cut rates this time, Powell's remarks clearly extinguished the market's expectations for another rate cut in December.

Powell said: “Today, everyone’s opinions are completely different. This shows that we have not yet made a decision regarding the situation in December; we will study the data we have and how this data will affect the outlook and risk balance.” The message conveyed by this statement is very clear: The Federal Reserve (FED) will not commit to further easing before seeing more economic data.

According to data from CME FedWatch, there was a dramatic shift in market expectations following the press conference. Before the meeting, the market's expectation for a rate cut in December was around 96%, almost certain to happen. After the meeting, this probability plummeted to 0%, replaced by a surge in the probability of maintaining the interest rate at around 70%, with even a possibility of a rate hike of about 20% to 30%.

Comparison Before and After the FOMC Press Conference on December 10, 2025:

Pre-meeting expectations: The probability of a rate cut is about 96%, while maintaining or raising rates is about 4%.

Post-meeting Expectations: Probability of rate cut drops to 0%, maintaining the Intrerest Rate at about 70%, with a rate hike at approximately 20-30%.

(Source: CryptoSlate)

What is even more concerning is that the interest rate hike tail in January 2026 approaches 18.5%, reflecting ongoing worries that if data does not cool down, sticky inflation may force the committee to change its policy. Although this 18.5% interest rate hike probability is not the main scenario, its existence itself indicates the market's vigilance regarding the Federal Reserve (FED) potentially shifting back to a hawkish stance.

Interest Rate Path Adjustment Compresses Bitcoin Valuation Space

Long-term path repricing has risen. FedWatch predicts that by 2026, the interest rate distribution has been adjusted upwards by about 25 basis points and tends to flatten, with the majority of outcomes concentrated around 3.00% to 3.25% in the latter half of 2026, continuing into 2027. Previous snapshots indicated that by the end of 2026, rates would trend towards 2.75% to 3.00%. This trend suggests fewer rate cuts and a delay in the timing of cuts, with the market generally believing that the neutral real interest rate is higher than previously expected.

The upward adjustment of this interest rate path has multiple direct impacts on Bitcoin and cryptocurrencies. A long-term stance of maintaining high interest rates supports the US dollar and keeps real yields firm, which often puts pressure on high beta risks and long-term investment strategies related to forward cash flows. Although Bitcoin is often viewed as digital gold and a store of value, its price still highly depends on the liquidity environment in actual market operations.

The ability of Bitcoin to absorb such volatility is usually better than that of smaller market cap tokens and first-level altcoins, and its decline is also smaller. However, the overall cryptocurrency liquidity, including stablecoin circulation and leverage, still reflects the same macro environment. Due to the ongoing balance sheet reduction and high policy interest rates, the cost of capital within the crypto ecosystem remains constrained, and Treasury alternatives have diverted some marginal demand from basis and arbitrage structures.

The flow of funds is increasingly reliant on data. The asset allocation of spot ETFs and funds is very sensitive to the fluctuations in interest rate hikes before and after major data releases. An upward adjustment in inflation or strong labor market data often increases the likelihood of imminent interest rate hikes and raises risks, while a significant deflation may reactivate demand for term and growth indicators. In this environment, as the probabilities change, the rotation speed between BTC and altcoins will accelerate, and when uncertainty rises, asset allocators tend to choose trading pairs with higher balance sheet quality and stronger liquidity.

The differentiation between Bitcoin and altcoins will intensify

Policy uncertainty will also reshape the pattern of market volatility. The thicker the tail of the upward movement, the broader the distribution of cryptocurrency returns, and the correlation with actual interest rates and the dollar index often rises during the release of key macroeconomic data. This pattern may increase the internal diversification of cryptocurrencies, with projects based on more precise cash flow or fee collection performing better than those with outdated token economic models and a large issuance of tokens.

As the risk-free Intrerest Rate rises, the financing market may become cheaper, and mining companies will face higher capital expenditures and future cash flow discount rates, making power costs, leverage, and capital structure the focus. For miners, sensitivity to electricity prices and balance sheet leverage has become a greater driver of equity-linked tokens and revenue sharing, requiring a trade-off between forward hedging costs and spot price appreciation options.

The scenario planning for the next one to three months mainly revolves around three directions. According to the latest data, the baseline scenario indicates that the probability of maintaining the interest rate unchanged in December is close to 70%. Economic growth is slowing down, and inflation has not yet dropped low enough to trigger another rapid rate cut. In this situation, real yields will remain firm, and stock and cryptocurrency trading will exhibit a volatile range, with Bitcoin's performance leaning more towards hedging against the risks of high beta altcoins.

Three Major Scenarios Impacting Bitcoin:

Basic Scenario (70% Probability of No Change): Consolidation range, Bitcoin shows relative resilience against downturns, altcoins under pressure.

Hawkish Surprise (20-30% probability of rate hike): Increased risk aversion, stronger US dollar, compression of Bitcoin valuation.

Dovish Shift (Data Significantly Cools): Liquidity Stimulus, Bitcoin Benefits First, Altcoins Follow Suit.

A hawkish surprise (defined as a 25 basis point rate hike in December or January) will intensify safe-haven pressure, drive up the dollar, and compress long-term cryptocurrency valuations, increasing the withdrawal risk in leverage-intensive areas, while directing funds towards cash flow infrastructure and quality L2 assets. If core indicators show a convincing dovish stance, rate cuts may occur in mid-2026. Liquidity stimulus will initially boost Bitcoin, making it the clearest macroeconomic indicator.

Investment Strategy Adjustments to Address The Federal Reserve (FED) Uncertainty

The construction of investment portfolios in this series of products usually prioritizes liquidity management, basis calibration, and convexity. Given its depth and clearer macro beta coefficient, Bitcoin remains the most direct tool to strategically reflect changes in policy probabilities surrounding CPI, PCE, and labor market reports. Among other cryptocurrencies, when the risk-free benchmark is higher, the diversified screening around capital reserves, issuance volume, and fee income becomes even more important.

Interest rate cuts have already occurred, but the turning point has not yet arrived. Traders now tend to believe that the market will continue to rise until 2026. According to CME FedWatch data, the repricing has been reflected across the entire curve of the meeting outcomes, with the meeting on December 10 currently showing a maintenance of the interest rate unchanged, accompanied by a not insignificant rate hike tail. According to The Federal Reserve (FED), the adjustment of the benchmark interest rate has facilitated the interest rate cuts, but communication remains slow and conditional regarding the easing path.

For Bitcoin investors, the current environment demands more cautious risk management. The high interest rate environment has increased the opportunity cost of holding cash or short-term government bonds, which weakens the relative appeal of zero-yield assets like Bitcoin. At the same time, the uncertainty surrounding Federal Reserve (FED) policies has increased market volatility, making short-term traders face greater directional risks.