The Federal Reserve's 150 basis point rate cut by 2026 has become a consensus, but internal disagreements may trigger market volatility.

The Congressional Budget Office projects that the Federal Reserve’s interest rate will fall to 3.4% by Q4 2026. This represents a decrease of about 150 basis points from current levels, aligning with market expectations. However, behind the seemingly clear rate cut target, disagreements within the Federal Reserve regarding the policy path are widening, which could become a significant variable for the market this year.

Rate Cut Expectations Have Reached Consensus, but the Timeline Varies

According to the latest news, a consensus has formed in the market that the Fed will cut rates by approximately 150 basis points by 2026. The Congressional Budget Office’s forecast provides a specific figure—an end-of-year rate of 3.4%—giving the market a clear policy direction. However, how and when this target will be achieved remains a point of contention within the Fed.

Fed Governor Milan recently stated that the current interest rate policy is “significantly restrictive” and is exerting substantial drag on the economy. He even advocated for sufficient reasons to cut rates “well over 100 basis points” in 2026. This dovish stance contrasts sharply with some officials who believe policy is already approaching neutral.

Employment Data as a Key Policy Divergence Point

The root of internal disagreements within the Fed lies in differing assessments of the economic outlook. From a macro perspective, whether policy is excessively tight still depends on the actual performance of the labor market. This explains why recent employment data has attracted high market attention.

According to the latest report, the number of Americans filing for unemployment benefits has fallen to 208,000, below market expectations. A series of indicators—including ADP employment data, JOLTS job openings, and non-farm payroll reports—will be critical in assessing whether the economy can withstand high interest rates. If employment remains resilient, the justification for the Fed to pause rate cuts in the short term will increase; conversely, if data weakens again, the voices advocating for aggressive easing will quickly grow louder.

Impact on Liquidity in the Crypto Market

This policy divergence itself sends an important signal. Uncertainty about the interest rate path means liquidity expectations will remain highly sensitive to data changes, potentially amplifying short-term volatility. However, in the medium to long term, if subsequent employment and inflation data point toward a policy shift, the market will reassess the liquidity environment, providing structural support for assets like Bitcoin that have “monetary properties.”

Currently, market expectations for a rate cut in January have significantly decreased. After the release of US employment data, the CME FedWatch Tool shows the probability of a rate cut in January has fallen to 11.1%, while the probability on Polymarket has dropped to 8%. This reflects the market’s dynamic adjustment of rate cut expectations based on employment data.

Summary

The consensus on a 150 basis point rate cut by the Fed in 2026 has been established, but the path to achieve it remains clearly divided. Employment data will be a key indicator in determining whether the Fed adopts an aggressive easing stance or remains cautious. For crypto assets, this policy uncertainty could trigger short-term volatility but also create structural opportunities as liquidity conditions improve. Moving forward, close attention should be paid to employment reports, inflation data, and other key economic indicators, as they will directly influence the Fed’s policy decisions and market liquidity expectations.