The recent remarks by the Federal Reserve Chair in Philadelphia have stirred the market—inflation is no longer the most urgent issue, and the real focus has shifted to the weakening risks in the labor market. This marks a formal shift in the Fed's policy stance from fighting inflation to protecting employment, but the problem lies in internal disagreements and unclear direction. The play of rate cuts is bound to encounter many detours, and for the crypto market, the expected liquidity dividends may come later and be more arduous than anticipated.

**What exactly are the policy signals saying?**

Policy makers have clearly stated that the inflation situation has gradually shifted from an alarmed state to a cautiously optimistic one. The current interest rate level still has restrictive features, enough to keep inflation near the 2% target. But the key word here is—if the economy develops as expected, moderate rate cuts will not occur until the second half of 2026, and it’s unlikely in the first half.

CME data is straightforward: the probability of a rate cut in January is only 20%, and in March it barely exceeds 50%. The market’s previous optimistic hopes for rate cuts in the first half of the year have been completely shattered. More painfully, there are divisions within the Fed—at the December meeting, three dissenting votes were rare, with 19 decision-makers holding vastly different views on rate cuts. Seven even advocated for holding steady or continuing to raise rates, while extreme dovish members predicted a 150 basis point cut, reaching a nearly decade-high level of division. The median of the dot plot only hints at one rate cut in 2026, but whether this frequency can be maintained depends on how weak the labor market actually becomes.

**The harsh reality facing the crypto market**

The crypto asset space relies on liquidity to stay vibrant, but it has now fallen into a state of extreme fear. The market longs for easing policies more than ever. But the harsh reality is that the first half of the year is destined to be dominated by volatility, as expectations for rate cuts will fluctuate repeatedly. High-leverage, high-valuation small coins will be the first to be wiped out, and the overall market uncertainty will be amplified by this policy confusion.