In 2025, global markets anticipated the Federal Reserve would decrease rate cuts to encourage risk-on asset trading. While the Fed implemented three rate cuts that year, with the final one announced in December, market reactions remained subdued.
The latest 25-basis-point rate cut prompted some market movement, but the European Central Bank (ECB) held its rates steady, highlighting differences in how assets responded to monetary policies across regions. As the U.S. continues to influence global markets heavily, this situation underscores the delicate balance policymakers must maintain.
Bitcoin’s volatile response to policy shifts
Bitcoin’s recent price action and drop of 30% from $126,000 to $80,000 lows still underscore the asset’s volatility. Despite the Fed’s dovish stance on crypto and other digital assets, Bitcoin failed to reach a new high.
Following December’s 2025 rate cuts, BTC traded in the $92,000 area after a brief surge above $94,000. It then fell below $86,000, driven by mixed labor signals and a 43-day government shutdown that delayed critical economic data.
Bitcoin’s ability to maintain positive price action even amid lower interest rates is highlighted by price movements driven by institutional players. Thus, ETF outflows and the consistent inverse correlation with the real interest rate have exposed Bitcoin’s liquidity as fragmented and weak during periods of both uncertainty and market bullish sentiment.
For investors, a prolonged dovish stance from the Fed could eventually provide a tailwind, making speculative assets more attractive.
US stocks surge on Fed rate cut
The most important indicator to analyze in relation to the rate cut is how the US stock market reacted to the news in December. On Wednesday, December 10th, the US stock market rose to the edge of its record highs after the Fed cut its main interest rate to bolster the job market.
The S&P 500 climbed 0.7%, finishing just shy of its all-time high set in October. The Dow Jones Industrial Average jumped 497 points (1%), and the Nasdaq composite rose 0.3%. Specific sectors saw significant movement, with GE Vernova flying 15.6% higher after raising its 2028 revenue forecast, and Palantir Technologies adding 3.3% following news of a major U.S. Navy contract.
Even amid uncertainty posed by the AI tech bubble, the overall market is surging with traders forecasting more rate cuts in 2026, which could drive more liquidity into the market.
EU market performance and Central Bank decisions
In European markets, the Fed’s rate cuts only boosted confidence, with markets showing resilience. European stocks finished higher on Thursday, December 11, as investors digested the U.S. Fed’s cut and the Swiss National Bank’s (SNB) decision to hold rates.
The pan-European Stoxx 600 closed 0.5% higher, with most sectors ending in positive territory. The SNB left rates unchanged at 0%, citing inflation coming in slightly lower than expected (Swiss inflation fell back to 0% in November). The bank noted that while global economic growth was stronger than expected in the third quarter, trade policy uncertainty and U.S. tariffs weighed on the global outlook.
Monetary policy actions
Policymakers at the Fed lowered the federal funds rate for the third time this year, taking the target range to 3.50%-3.75%. Fed Chair Jerome Powell stated that the reduction puts the Fed in a comfortable position, noting that the upward revision in GDP growth forecasts reflected resilient consumer spending. However, the decision wasn’t unanimous; two officials voted against the cut, while a third wanted a deeper reduction.
Conversely, the ECB is expected to hold firm. With the deposit rate seen remaining at 2.0% during their December 18 meeting, the easing cycle in Europe appears to be over for now. Economists argue that European inflation is widely considered to be neutral. However, external factors like lower energy prices and the diversion of Chinese goods to Europe due to US tariffs could put downward pressure on inflation, potentially leading the ECB to cut rates in 2026.
Looking ahead
Moving into 2026, the economic conditions couldn’t be more diverse. The US economy is showing signs of resilience with revised GDP growth expectations, while the EU is facing headwinds from trade policies. What’s worth noting is that the US economy is at an inflection point, with potential growth driven by multiple rate cuts, amid the imminent threat of inflation and an AI bubble.For investors, the key lies in diversifying their investments, and Yieldfund could be the solution. Yieldfund offers investment plans with up to 60% annual returns and weekly payouts. Ideal for both new and seasoned investors, it means traders don’t have to learn crypto or understand how to trade to access the crypto market.
