The Federal Reserve held interest rates steady on Wednesday, a decision that capped a sharp shift in market expectations that once favored a rate cut in early 2026.
“Employment growth has remained low and the unemployment rate has shown some signs of stabilization,” the central bank said in its policy statement. “Inflation remains somewhat high.”
There were two disagreements with the decision to hold policy steady: Stephen Miran and Chris Waller, Trump’s recent appointees (reportedly in the race to replace Jerome Powell as Fed chair), each preferred to cut the federal funds rate by 25 basis points.
Bitcoin remained just below $89,500 following the Federal Reserve’s expected action, and US stocks were little changed. The US dollar remained sharply higher throughout the day after yesterday’s big drop, and gold continued to rise 3.7%, near record levels of $5,300 an ounce.
Just two months ago, traders were divided on the outlook, with prediction markets pricing in a January cut of more than 40%.
By late November, those odds had already begun to fade. By the time we got to the meeting, the change was complete. Markets priced in almost 99% no change, effectively erasing expectations for near-term easing and cementing the view that the Federal Reserve would maintain a restrictive policy during the first quarter.
While the January decision closes the door to early cuts, it has not completely eliminated expectations of easing.
Market participants do not expect the Federal Reserve to resume rate cuts at its next meeting in March; CME FedWatch puts the odds at just 16%. The chances are a little higher in April, reaching around 30%.
“The US Federal Reserve’s decision to hold interest rates on hold reflects lingering concerns about inflation and a stabilizing economic backdrop, which is likely to result in near-term volatility for crypto markets as liquidity remains supportive,” Nick Ruck, director at LVRG Research, said in a Telegram message. “If Chairman Powell’s press conference conveys a cautious ‘higher for longer’ stance or hints at fewer cuts ahead in 2026, we could see near-term pressure on risk assets, including bitcoin.”
Investors will now look for clues about the central bank’s thinking at Jerome Powell’s post-meeting press conference at 2:30 p.m. ET.
