The Fed's "combined measures" have arrived: a 25 BP rate cut + stopping balance sheet reduction in December, bringing new variables to the crypto market.

The Fed has taken action again. This morning Beijing time, the FOMC meeting announced that the federal funds rate would be lowered from 4.00%-4.25% to 3.75%-4.00%, marking the second consecutive 25 basis point cut. The key point is that the Fed also announced it would stop tapering from December 1, ending a 3.5-year quantitative tightening program.

The market has already digested it.

CME Fed funds futures indicate that the market pricing probability for this rate cut is as high as 99.9%. In other words, there is no suspense. Investors have even already priced in the expectation of another 25 basis point cut in December (probability 91%), essentially locking in the roadmap for three rate cuts this year.

Tapering comes to an end, short-term government bonds take over MBS

A bigger turning point is the halt of balance sheet reduction. Starting in December, the Fed will stop selling bonds and instead replace maturing mortgage-backed securities (MBS) with short-term government bonds. In simple terms: the Fed will no longer passively “offload” assets, but will actively adjust its asset allocation.

There is a deeper logic behind this - the federal funds market has recently shown signs of tightening liquidity, and while bank reserves are sufficient, their growth rate is slowing. The Fed's actions are a proactive response to this change.

Fed internal “divide” intensifies

The voting results revealed interesting information: two FOMC members voted against. The newly appointed board member nominated by Trump, Milan, insisted on an aggressive 50 basis point rate cut, while Kansas City Fed President Schmid advocated for keeping the interest rate unchanged.

This reflects that the internal divisions within the Fed regarding the future direction of policy are widening. Unlike in July, when only two opposed the rate cut, this time the reasons for opposition are completely opposite—some feel the cuts are not happening fast enough, while others believe there should be no cuts at all.

Employment data “silenced”, the outlook is even more uncertain

There is another detail in the statement worth noting: due to the U.S. government shutdown, the release of economic data has been impeded. The Fed replaced the “recent” ( indicators with the “available” ) indicators to describe economic conditions. This means that decision-makers are making choices under incomplete information—which sounds a bit risky.

What are the implications for the cryptocurrency market?

Short-term bullish → The interest rate cut cycle continues, and risk assets (including BTC/ETH) receive policy support.

Mid-term Risk → The uncertainty in the Fed's policy direction may lead to increased market volatility.

Long-term Perspective → The end of balance sheet reduction marks a turning point in the liquidity environment, which is crucial for the crypto market that relies heavily on high liquidity.

The simple and straightforward conclusion: the Fed is still “easing”, but internal divisions and data shortages have made the future path unclear. The fluctuations in the crypto market may be born out of this uncertainty.