CBO forecasts the Federal Reserve will cut interest rates slightly to 3.4% this year. How will the crypto market respond?

The Congressional Budget Office (CBO) released a forecast on Thursday indicating that the Federal Reserve will further cut interest rates slightly in 2026 to address downside risks in the labor market. This forecast involves several key economic indicators and has significant implications for the policy environment in the cryptocurrency market.

Core Predictions from the CBO

According to the latest news, the CBO makes the following predictions for the U.S. economy in 2026:

Key Features of the Rate Cut Forecast

The rate cut predicted this time is relatively moderate and not a large-scale easing policy. The CBO points out that the main purpose of the rate cut is to address downside risks in the labor market, rather than to combat inflation pressures. This suggests that the Federal Reserve may adopt a defensive rate cut strategy rather than an expansionary policy.

From the forecast data, the PCE inflation rate is expected to decrease to 2.7%, still above the Fed’s 2% target, indicating that inflation remains a key focus for the Federal Reserve.

Potential Impact on the Crypto Market

Expectations of rate cuts generally have multi-dimensional effects on crypto assets:

• Liquidity Improvement: In a rate-cut environment, the pressure for USD appreciation weakens, and global liquidity remains relatively ample, potentially supporting demand for risk assets
• Institutional Allocation: Falling interest rates reduce the attractiveness of traditional fixed-income assets, prompting institutional investors to increase allocations to alternative assets like cryptocurrencies
• Market Sentiment: Easing expectations typically boost risk appetite, but the extent depends on the magnitude of the rate cut
• Volatility: During the process of decreasing from 3.4% to 3.4%, market reactions to each FOMC meeting’s decision will occur

Variables to Watch

The CBO’s forecast is based on current assessments of the labor market, but actual economic developments may deviate. If unemployment rises more than expected, the Fed might accelerate rate cuts; conversely, if employment data remains strong, rate cuts could be delayed.

Future Outlook

Looking at the forecast timeline, the Federal Reserve may gradually cut rates in 2026, reaching 3.4% in Q4 2026, and then maintaining that level for a considerable period. This “long-term maintenance after rate cuts” policy path could provide moderate and sustained support for the crypto market, rather than short-term sharp rallies.

Crypto markets should pay more attention to the differences between policy implementation and forecasts. If actual rate cuts are smaller than expected, risk assets may face pressure; if cuts are larger than anticipated, market risk appetite could increase.

Summary

The CBO’s rate cut forecast indicates that the Federal Reserve is balancing inflation management with employment protection, adopting a cautious and moderate policy adjustment. For the crypto market, this environment is relatively positive but unlikely to cause drastic volatility. The key lies in monitoring actual economic data versus forecasts and the Fed’s real decisions at FOMC meetings. The market has already partially digested the rate cut expectations, and the real market drivers may come from surprises during policy implementation.