The Fed’s Focus Has Quietly Shifted

Messaging around the US Federal Reserve’s December 10 interest rate cut signals that labour market deterioration now poses the biggest threat to the US economy, Aussie crypto market analyst Pav Hundal has claimed.

Hundal, who is the lead market analyst for crypto exchange Swyftx, said  that the Fed’s comments following its 25 basis point rate cut show it “just made its clearest pivot of the cycle. And it’s not squarely about interest rates.” 

For the first time in years, employment risks are now being weighed as heavily as inflation risks. This matters more than the rate cut itself.

Pav Hundal, Swyftx lead market analyst

The Fed lowered its cash rate to 3.5%-3.75% at its December meeting, which was the third cut delivered in 2025. Hundal pointed to a series of remarks from soon-to-be-replaced Fed Chair Jerome Powell in his rate cut announcement to support his belief that the Fed now sees unemployment as a greater risk than rising inflation.

For example, he argues Powell openly acknowledged the Fed is no longer in ‘inflation-first’ mode when the Fed Chair stated that “risks to inflation are tilted to the upside and risks to employment to the downside.” 

Hundal added that Powell’s comments referencing increasing “downside risk to employment in recent months,” clearly show that the Fed is changing tack to focus on labour market weakness — more so than suppressing inflation. US labour market data released on December 11 shows the unemployment rate rose in eight states over September.

“The Fed is easing not because inflation is beaten but because job-market deterioration is becoming the larger risk,” Hundal explained. He believes further monetary policy easing is likely to come “gradually, or sharply if something breaks.” 

Related: Bitcoin and Ether Slip into Choppy Trading as Fed Signals Cautious Path After Rate Cut

Market Drop Following Rate Cut Crushes Hopes of a Pre-Xmas Surge

Many crypto investors had been hoping for a pre-Christmas rate cut in the US, believing it may add some momentum to a stubbornly weak crypto market and perhaps kick off that alt-season so many had expected. However, when the rate cut came, rather than fuelling price rises, it actually triggered something of a mini market crash. 

Before the announcement, Bitcoin had just ticked over the US$94,000 (AU$141k) mark, but in the hours following it rapidly plunged below US$90,000 (AU$135k). Other major cryptocurrencies saw similar price action — Ethereum dropped more than 4% to fall below US$3,200 (AU$4.8k), Solana dropped over 9% from almost US$143 (AU$214) to under US$130 (AU$195) and most alts also saw significant drops.

By the end of December 10, a total of over US$1 billion (AU$1.5b) in leveraged crypto positions had been liquidated, mirroring the other rapid large-scale sell-offs seen in crypto over the past few months.

Why would the crypto market react so negatively to an interest rate cut, a move which is ostensibly good news?

The problem is likely related to Hundal’s analysis — despite the rate cut, the overall outlook from the Fed is pretty negative. Certainly more negative than what many in crypto were hoping for.

But according to crypto analyst, Milk Road, there may be some hope on the horizon. Posting on X, Milk Road explained that as part of its announcement, the Fed said it intends to buy US$40 billion (AU$60b) in government treasury bills over the next 30 days. 

When the Fed buys Treasury bills, Milk Road explained, “it injects liquidity back into the system.”

“This isn’t headline QE [quantitative easing],” they said, “but it functions like a stealth version of it: more reserves in money markets, lower front-end yields, and looser financial conditions almost immediately.” 

“A rate cut moves policy. Bill buying moves the plumbing. Markets tend to react to the second one a lot faster.”