FOMC Week Playbook: The Dot Plot, Powell’s Message, and What Really Matters for Markets

This Wednesday, the Federal Reserve will announce its final interest rate decision of the year. Market expectations are highly aligned.

According to CME FedWatch data, the probability of a 25 basis point rate cut exceeds 85%. If implemented, this would mark the third consecutive rate cut since September, bringing the federal funds rate down to the 3.5% to 3.75% range.

For crypto investors accustomed to the narrative that rate cuts are bullish, this initially sounds like good news. However, the issue is that when everyone expects a rate cut, the cut itself no longer acts as a catalyst for the market.

Financial markets are expectation driven. Prices reflect not what happens, but what happens relative to expectations. An 85% probability indicates that the rate cut has already been fully priced in. When the decision is announced early Thursday morning, the market is unlikely to react meaningfully unless there is a surprise.

So what, then, is the real variable to watch?

The Federal Reserve's stance on the outlook for next year is what truly matters. A 25 basis point cut is largely a given, but how long the easing cycle will last and how many additional cuts may come in 2026 are the real points of contention for the market.

On that day itself, the Fed will also update its projections for the future path of interest rates. These projections often have a greater influence on market direction than the rate decision itself.

This time, however, there is an additional complication. The Federal Reserve itself may lack sufficient clarity.

From October 1 to November 12, the U.S. federal government was shut down for 43 days. During this period, statistical agencies suspended operations, resulting in the cancellation of the October CPI release and the delay of the November CPI report to December 18, a full week after this week's FOMC meeting.

As a result, policymakers are missing inflation data for the past two months when discussing the interest rate outlook. When decision makers are effectively operating with limited visibility, the guidance they provide is likely to be more ambiguous. Ambiguity, in turn, often creates greater room for market volatility.

Let's have a look at the key macro events on this and next week.

We can break this down more specifically by examining the types of signals the Fed may deliver and the corresponding market reactions to each.

Positioning for Expectations Next Year

After each FOMC meeting, the Federal Reserve releases the Summary of Economic Projections. One chart in this report shows each Fed official's expectations for the future path of interest rates.

Each official marks a single point representing where they believe the policy rate should be at year end. Because the chart appears as a collection of scattered dots, the market commonly refers to it as the dot plot. You can find historical versions of the dot plot on the Federal Reserve's official website.

The chart below shows the dot plot released at the September 17 FOMC meeting.

It illustrates both consensus and divergence within the Federal Reserve. When the dots are tightly clustered, it suggests policymakers broadly agree and the policy path is relatively clear. When the dots are widely dispersed, it signals internal disagreement and a more uncertain outlook.

For the crypto market, uncertainty itself is a risk factor. It tends to suppress risk appetite and encourages capital to stay on the sidelines rather than move into risk assets.

From the chart, the 2025 column shows the dots mainly concentrated in two areas. Around 8 to 9 dots sit near the 3.5% to 3.625% range, while another 7 to 8 dots cluster around 3.75% to 4.0%. This indicates a split within the committee.

One group believes there should be one to two additional rate cuts over the coming year, while the other group favors a pause or only a single cut. The median sits around 3.6%, which implies that the baseline expectation among most members is roughly two rate cuts in 2025, including this week's move.

Looking ahead to 2026, the divergence becomes even more pronounced. The current policy rate is 3.75% to 4.00%. If it falls to around 3.4% by the end of next year, that would imply only one to two cuts over the entire year. However, the chart shows that some officials believe rates should fall as low as 2.5%, equivalent to four to five cuts, while others think rates should remain at around 4.0%, implying no cuts at all.

Within the same committee, the gap between the most aggressive and most conservative expectations amounts to the equivalent of six rate cuts. This is a highly divided Federal Reserve.

If policymakers within the Fed cannot reach a clear consensus, the market will naturally respond with its own judgment. At present, traders are positioning more aggressively than the Fed's official guidance. CME FedWatch data shows that the market is pricing in two to three rate cuts in 2026, while the median forecast in the official dot plot indicates only one.

As a result, this Wednesday's FOMC meeting is, in many ways, a comparison of expectations between the Fed and the market. The key question is whether the Fed will move closer to market expectations or maintain its own pace and framework.

Three Scenarios, Three Market Reactions

Based on current information, there are broadly three possible outcomes for this week's FOMC meeting.

1. The most likely scenario: in line with expectations

The Fed delivers a 25 basis point rate cut, the dot plot remains consistent with guidance from the September meeting, and Chair Powell repeatedly emphasizes a data dependent approach during the press conference without offering a clear forward direction.

In this scenario, market volatility would likely be limited. The rate cut is already priced in, the guidance is unchanged, and there is no new signal for traders to act on. The crypto market would most likely track U.S. equities, experiencing modest fluctuations before reverting to its prior trend.

This is also the baseline expectation of most Wall Street institutions. Recent research from firms such as Goldman Sachs and Raymond James points clearly in this direction.

2. The second most likely scenario: a dovish tilt

The Fed cuts rates by 25 basis points, but the dot plot signals two or more rate cuts in 2026. Powell adopts a softer tone, emphasizing that risks in the labor market now outweigh inflation risks.

This would effectively represent the Fed moving closer to market expectations and confirming a more accommodative path. A weaker U.S. dollar would support dollar denominated assets, while improved liquidity expectations would lift market sentiment. Bitcoin and Ethereum could rise alongside U.S. equities, with Bitcoin potentially retesting recent highs.

3. Lower probability but not negligible: a hawkish tilt

The Fed still delivers a 25 basis point cut, but Powell stresses inflation persistence and signals limited room for further easing next year. Alternatively, multiple dissenting votes could appear, indicating internal resistance to continued monetary loosening.

In this scenario, market expectations would need to be repriced. Treasury yields could move higher, the U.S. dollar may strengthen, and risk assets would likely face pressure. For crypto markets, this would be the most unfavorable outcome in the short term, potentially triggering a pullback as risk appetite contracts.

However, if the shift is limited to hawkish rhetoric rather than a substantive policy reversal, the downside is often contained. In such cases, pullbacks may instead present entry opportunities.

Under normal circumstances, the Fed would adjust the dot plot based on the latest data. This time, however, the government shutdown left policymakers without two months of CPI data, forcing them to make judgments based on incomplete information.

This creates several knock-on effects. First, the informational value of the dot plot itself is diminished. When policymakers are uncertain, the dots they plot are more likely to be dispersed, reflecting that uncertainty.

Second, greater weight will fall on Powell's press conference. Markets will scrutinize every word he uses in search of directional guidance. If the signal implied by the dot plot does not align with Powell's tone, confusion is likely to increase and volatility could be amplified.

For crypto investors, this suggests that price action on Wednesday may be more difficult to anticipate than usual.

Rather than betting on direction, it may be more prudent to focus on volatility itself. When uncertainty rises, managing position size becomes more important than making bullish or bearish bets.

JOLTS: Useful Context, but Not the Main Event Before the FOMC

So far, the discussion has focused on Thursday’s FOMC meeting. However, there is another data release scheduled earlier today at 15:00 UTC: the JOLTS report.

On social media, JOLTS is sometimes portrayed as highly influential, with claims that it can quietly determine the direction of liquidity. In reality, its weight among macroeconomic indicators is not particularly high. If your time and attention are limited, focusing on Wednesday's FOMC meeting is more than sufficient. If you want additional context on labor market conditions, it is still worth understanding what JOLTS represents.

JOLTS stands for the Job Openings and Labor Turnover Survey. It is published monthly by the U.S. Bureau of Labor Statistics and tracks how many job openings U.S. employers have, how many workers are hired, and how many leave their jobs.

The most closely watched metric is the number of job openings. Higher figures indicate stronger hiring demand and a tighter labor market. At its peak in 2022, job openings exceeded 12 million, reflecting aggressive hiring and rapid wage growth, which raised concerns at the Fed about inflationary pressure. That number has since fallen to around 7.2 million, broadly returning to pre-pandemic normal levels.

Why might the importance of this data be overstated?

First, JOLTS is a lagging indicator. The data released today covers October, but it is already December. Markets tend to focus more on indicators with greater timeliness, such as weekly initial jobless claims and the monthly nonfarm payrolls report released at the start of each month.

Second, an expected level of around 7.1 million job openings does not indicate an overheated labor market. Some analysts have noted that the ratio of job openings to unemployed workers fell below 1.0 as early as August, meaning there are now fewer than one job opening per unemployed person.

This is a stark contrast to the conditions in 2022, when there were roughly two job openings for every unemployed worker. The narrative of an "overheated" labor market is, in reality, already outdated.

According to forecasts from LinkUp and Wells Fargo, tonight's October JOLTS reading is likely to come in around 7.13 to 7.14 million, largely unchanged from the previous 7.2 million.

If the data meets expectations, the market reaction should be minimal. It would simply reinforce the existing narrative that the labor market is continuing to cool gradually, without altering expectations for the Fed.

In that sense, tonight's release is more of an appetizer ahead of the FOMC meeting.

How will your BTC position be affected?

The earlier sections focused on macro data, but you are probably more concerned about a practical question: how do these factors actually affect the BTC and ETH you hold?

Here is the conclusion upfront. They do matter, but it is not as simple as "rate cuts equal higher prices."

The Fed's rate decisions influence the crypto market through several channels.

The first is the U.S. dollar. Rate cuts reduce the yield on dollar assets, pushing capital to seek alternatives. When the dollar weakens, dollar denominated assets, including BTC, tend to perform better.

The second is liquidity. In a low rate environment, borrowing costs fall and more money circulates in the market. Some of this liquidity flows into risk assets. The bull market of 2020 to 2021 was driven in large part by the Fed's aggressive quantitative easing.

The third is risk appetite. When the Fed sends dovish signals, investors are more willing to take risk, with capital rotating from bonds and money market funds into equities and crypto assets. Conversely, hawkish signals tend to push capital back toward safer assets.

Together, these channels form the transmission mechanism from Fed policy to the crypto market: Fed policy influences the dollar and liquidity, which shape risk appetite, and ultimately affect crypto asset prices.

In theory, BTC is often described as having two possible identities: "digital gold" or a "risk asset."

If it were digital gold, it should behave like gold, rising during periods of market stress and showing a negative correlation with equities. If it were a risk asset, it should move in tandem with the Nasdaq, performing well when liquidity is abundant.

In practice, over the past few years, BTC has behaved much more like the latter.

According to research from CME, since 2020 the correlation between BTC and the Nasdaq 100 has jumped from near zero to around 0.4, and at times has exceeded 0.7. The Kobeissi Letter recently noted that BTC's 30 day correlation with the Nasdaq briefly reached 0.8, the highest level since 2022.

However, a notable shift has emerged more recently. According to CoinDesk, over the past 20 days the correlation between BTC and the Nasdaq has fallen to negative 0.43, showing a clear inverse relationship.

Source: https://newhedge.io/

The Nasdaq is now less than 2% below its all time high, while BTC has fallen 27% from its October peak.

Market maker Wintermute offers an explanation for this divergence. BTC is currently showing what they describe as "negative skew." When equities fall, BTC tends to fall even more, but when equities rise, BTC reacts sluggishly. In their words, BTC is "only showing high beta in the wrong direction."

What does this mean in practice?

If this week's FOMC delivers a dovish signal and U.S. equities move higher, BTC may not necessarily rebound in tandem. However, if the Fed signals a more hawkish stance and equities decline, BTC could experience a much sharper drop. This creates an asymmetric risk profile.

Summary

After covering all of this, here is a framework for ongoing monitoring.

What to watch this week (December 9 to 12)

The main focus is the FOMC meeting on Wednesday. Pay attention to three key factors:

• Whether the dot plot changes, especially the median rate projection for 2026

• The tone of Powell's press conference, whether it is dovish or hawkish

• The voting results, particularly whether there are multiple dissenting votes

What to watch in mid to late December

The delayed November CPI data will be released on December 18. If inflation rebounds, markets may reprice expectations for rate cuts next year. In that case, the narrative of continued Fed easing could be challenged.

What to watch in Q1 2026

• First, potential leadership changes at the Federal Reserve. Powell's term as Chair ends in May 2026.

• Second, the ongoing impact of Trump's policies. If tariffs are expanded further, inflation expectations may rise and limit the Fed's ability to ease.

• Finally, continue monitoring the labor market. If layoffs begin to accelerate, the Fed may be forced to cut rates more aggressively, leading to a very different scenario.

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