Federal Rate Cuts Could Transform 2026 into a Positive Year for Crypto: Insights from Delphi Digital

The Federal Reserve is prepared to implement a 25-basis-point rate cut during its December meeting, potentially lowering the federal funds rate to around 3.50-3.75%. Furthermore, forecasts suggest several additional cuts through 2026 that may drive rates down to the low-3% area by the end of the year. Delphi Digital highlights that this will mark a significant shift in policy, likely benefiting larger companies, gold, and digital assets such as Bitcoin.

Key Takeaways

December Rate Cut: A potential 25-basis-point cut brings the federal funds rate to approximately 3.50-3.75%.
Positive Market Liquidity: The end of quantitative tightening indicates a shift to a more favorable liquidity environment in 2026.
Economic Divisions: The Fed faces challenges, with a split committee and political pressures affecting policy direction.
Impact on Asia: Asian currencies are expected to gain support from the Fed's easing policies, creating a more favorable economic climate.

Fed Rate Cuts: A Turning Point for 2026

The Federal Reserve is likely to implement a 25-basis-point cut at its December meeting, which would reduce the federal funds rate to about 3.50-3.75%. Future projections suggest at least three additional cuts by 2026, potentially pushing rates into the low-3% range by year-end.

Research from Delphi Digital points out that with quantitative tightening finishing on December 1, alongside a Treasury General Account drawdown and the Reverse Repo Program being fully utilized, "this is the first net-positive liquidity backdrop since early 2022—turning policy in 2026 from a headwind to a mild tailwind."

Fed Rate Cuts 2026 - Delphi Digital

Delphi Digital emphasizes that 2026 will be the year when policy shifts from being a hindrance to being a supportive force, benefiting sectors like large-cap stocks, gold, and digital currencies such as Bitcoin, which has a strong demand base.

Fed Cuts Amid Inflation Woes

The anticipated December rate cut was widely expected, with the CME FedWatch indicating an 88% probability ahead of the Federal Open Market Committee meeting.

This decision is significant, given that key economic data from October, such as inflation and employment figures, were not released due to a government shutdown, leaving policymakers to rely on alternative indicators that provided mixed signals.

The Kobeissi Letter outlines the Fed's complexities, stating that "even as inflation hits 3%, the Fed MUST cut rates to ‘save’ US consumers." The analysis reveals a K-shaped economy where while large-cap tech stocks thrive, many consumers struggle. This situation necessitates rate cuts while the stock market remains buoyant, increasing the wealth gap as "Americans need the support as a labor market deteriorates."

Goldman Sachs' chief economist Jan Hatzius predicts a pause in January, followed by cuts in March and June, bringing rates to a terminal range of 3-3.25%. Bank of America has also revised its December outlook from maintaining rates to implementing a cut, highlighting that this action may increase the risk of pushing policies into a looser territory when fiscal stimulus is also expected to commence.

The broader context includes the cessation of quantitative tightening, which has previously removed about $60 billion per month from the balance sheet, continuously draining market liquidity throughout 2023 and 2024.

Divisions in the Fed: Implications for the Market

Recent meetings of the Federal Open Market Committee (FOMC) have revealed stark internal disagreements, complicating the economic outlook.

During the October meeting, there was an unusual split, with committee members voting for both no rate cut and a more aggressive 50-basis-point reduction, marking a rare situation in the Fed's history. According to minutes from the meeting, sharp conflicts emerged, with some participants in favor of lowering the target range for the federal funds rate while others were against it.

Political dynamics also play a role in this uncertainty. Reports indicate that the Trump administration canceled interviews for Fed chair finalists, suggesting Kevin Hassett may replace Jerome Powell next May.

Bank of America indicated that its forecast for two additional rate cuts in 2026 in June and July stems primarily from expected changes in leadership rather than economic predictions. Keith Buchanan, a senior portfolio manager at Globalt Investments, noted that traders are betting on a more dovish Fed as disappointing labor data emerges.

Asian Currencies Set to Gain from Fed Easing

The anticipated December rate cut is likely to bring relief to Asian currencies, according to Reuters.

India’s rupee, which recently crossed the 90 per dollar threshold, is expected to stabilize as will Indonesia’s rupiah, South Korea’s won, and the Philippine peso, all of which have fallen over 4% this quarter due to tightening conditions.

Fed Rate Cuts 2026 - Asia Currency Index

According to Bloomberg, traders are now projecting over a 90% likelihood for the quarter-point cut in December based on swaps data.

Wee Khoon Chong, a senior Asia Pacific market strategist at BNY, suggests that "further Fed easing is likely to be supportive for Asia FX in general."