Swyftx Squawk 🦜 Rate Drop Has Landed

The last few months have been a test of endurance for the crypto markets. Around the world – not just in the US – cash has become scarcer.  

As a reminder, since July we have seen the chequing account of the US government, the Treasury General Account (TGA) rise sharply. These are dollars being banked and removed from the system. On top of this, we also had quantitative tightening (QT) measures still in place since the 2022 inflation crisis. The TGA alone has risen just shy of $1 trillion, a steep rise from a $296 billion balance just in the middle of July.  

As we covered over the last few weeks on the Squawk, during this crunch on cash in the monetary system, we’ve witnessed more volatility. In fact, we experienced the largest liquidation event in crypto’s history.  

However, the mood (and data) is shifting.  

Interest rates in the US have fallen this week, in an early Thursday morning announcement from Federal Reserve chair Jerome Powell. A 25 basis point (0.25%) cut has been delivered, setting the current interest rate range to 3.25%-3.50%. This action came with the latest statements and forward guidance from the Fed, which helped paint the macroeconomic picture in the US. More on that soon.  

But the latest statement has been a complete flipping of the script from what we saw at the end of October. In the last key announcement from the FOMC, where Powell adopted a sobering hawkish tone, the markets responded in what was a tough month for crypto. 

However, that’s in the past, and now with another major event behind us, let’s dig into the current state of the US economy. 

Unemployment concerns > inflation  

The job of the Federal Reserve is to be an independent body, responsible for walking the tightrope between slowing growth/employment and rising inflation. Those are the two extremes the Fed must constantly balance through economic policy decisions. There are many tools in their shed, each with varying levels of effectiveness. Interest rates are one of them.  

To understand where things may be heading, it’s worth looking at what Jerome Powell said at this meeting. For the first time in years, to my memory, the Fed framed employment risk material enough to outweigh inflation concerns. This is a big shift, when we think about the tightrope analogy.  

“In the near term, risks to inflation are tilted to the upside and risks to employment to the downside — a challenging situation.” 

“With downside risks to employment having risen in recent months, the balance of risks has shifted.” 

And to make matters more concerning for the labour market, Powell didn’t shy away from acknowledging the job market is weakening faster than previously anticipated.  

“The Committee… judges that downside risks to employment rose in recent months.” 

That subtle shift in language, and the awareness that downside risks are accelerating, is a very important admission. It signals that current policy conditions may be too restrictive –  and depending on how quickly labour conditions degrade – may influence not just when, but also how meaningful economic easing will be.  

So where does this leave us? What is the state of play heading into 2026? 

Chart of the week: FOMC dot plot, 2026 and beyond 

Every few months the Federal Reserve release an updated version of something called the Dot Plot. Each dot represents an individual committee member’s expectation for where interest rates should be at given points in the future.  

It’s in no way a promise, but it is a clear plan that is generated by assessing underlying conditions and economic data. Think of this as a window into the mind of lead policymakers, and how they think the road ahead will unfold.   

What stands out immediately is the downward drift over the next three years. The majority of committee members currently believe a target rate should sit somewhere between 3.0%-3.25%.  

More simply put, The Fed as a collective foresee easing conditions into the future, not tightening.  

For markets like crypto, the dot plot isn’t a crystal ball revealing where Bitcoin is headed next week, or which of your altcoins is about to catch a bid.   

But it does set the backdrop.  

Improving liquidity conditions have historically been a structurally important driver for crypto demand. We can see this as a trend in 2024 after the first-rate drop of this cycle in the US, and again in the last crypto market cycle following Covid-19. When the cost of money falls, the market rethinks the best place to put it. 

There’s no guarantee that place will be crypto, but the macroeconomic environment is shaping up to be more forgiving toward risk assets.  

See you all again next week.  

Flows 

The buy-to-sell ratio for unique Swyftx orders is nominally >$20,000 AUD (rolling data over the last 7 days, captured at 09:00 am AEST).