Cryptocurrencies rebounded this morning after suffering heavy losses this week following the Federal Reserve’s final meeting of the year on Wednesday. The meeting included a 25 basis point cut in interest rates and more hawkish rhetoric from Fed Chair Jerome Powell that appeared to surprise investors.

Bitcoin (BTC -0.07%)a leading indicator for the sector, was down as much as 10% yesterday, but was only down less than 1% compared to late afternoon yesterday. The transaction price was around $97,300 at 11:33 a.m. ET on Friday. XRP (XRP -1.65%) It also recovered most of its losses from Thursday after falling as much as 9%. Shiba Inu (SHIB -5.54%) had fallen by up to 16% yesterday, but recently only fell by around 4%.

A piece of coal from the Fed? Or a complacent market?

On Wednesday, the Fed concluded its final meeting of the year and cut interest rates by 25 basis points, which almost all traders had expected. During his news conference, Powell said: “We will be cautious about further cuts.” Fed officials now expect to cut interest rates just twice more in 2025, down from a four-fold forecast in September.

Some may have interpreted this as Powell and the Fed handing the market a lump of coal for Christmas, but I was surprised that the market sold off so heavily. The market definitely looks overvalued. However, Powell’s comments and the Fed’s new forecasts may not have caught anyone’s attention by surprise.

Inflation is still above the Fed’s preferred 2% target and the labor market remains strong. And Fed officials appear to be taking a wait-and-see approach to President-elect Donald Trump’s policies. Some fear Trump’s proposed tax cuts and tariffs could spur inflation again.

Even more bizarre is that just a week ago CME GroupFedWatch’s FedWatch tool showed that about 33% of traders were betting on a cut in the federal funds rate to a range of 3.75% to 4%, while 27% of traders expected the federal funds rate to reach 4% at the end of 2025. would be up to 4.25%.

Now, about 34.5% of traders expect the federal funds rate to be in a range of 4% to 4.25% at the end of 2025. The probabilities have changed, but not by much.

The market was in turmoil, so I suspect investors didn’t need much of a reason to sell after an incredible two years of returns. The development of interest rates has had a significant impact on cryptocurrencies – the sector appears to be benefiting from expected interest rate cuts.

Fortunately, the market saw some relief this morning after the Fed’s preferred inflation indicator, the Personal Consumption Expenditures (PCE) Index, rose 0.3% in November, slightly below expectations. PCE, which excludes more volatile food and energy prices, rose 2.4% year-on-year, also slightly below expectations.

I haven’t seen much token-specific news, although the Securities and Exchange Commission recently approved a proposal from crypto asset manager Hashdex and Franklin Templeton to create a spot crypto index exchange-traded fund that combines Bitcoin and Ethereum.

Expect some volatility

Macro news appears to be dominating the market this week as investors try to figure out where interest rates and inflation will move in 2025. I think the market will experience volatility as the argument goes back and forth and new data emerges. A clear picture has yet to emerge.

Bitcoin, Shiba Inu and XRP will be more volatile than Bitcoin, which is the more stable option as many view the token as a hedge against inflation.