Fed Q1 2026 Outlook and Its Potential Impact on Crypto Markets

Key takeaways:

• Fed pauses may stress crypto, however “stealth QE” might cushion draw back dangers.

• Liquidity issues greater than cuts, shaping the course of BTC and ETH in Q1 2026.

The US Federal Reserve cut interest rates 3 times in 2025, largely within the closing quarter, as unemployment ticked greater and inflation confirmed clearer indicators of cooling.

But crypto markets reacted counterintuitively. Reasonably than rallying on dovish coverage, Bitcoin (BTC), Ether (ETH), and main altcoins offered off, with whole market capitalization shedding greater than $1.45 trillion from its document excessive in October.

Let’s look at how the central financial institution’s insurance policies might fare into March 2026 and their potential affect on the broader crypto market.

Bitcoin, Ether can drop tougher if Fed pauses charge cuts

Regardless of delivering three consecutive 0.25% charge cuts, most Fed officers, together with New York President John Williams, stressed the chance of inflation and information dependence, providing no clear sign of additional easing.

“I don’t personally have a way of urgency to wish to behave additional on financial coverage proper now, as a result of I feel the cuts we’ve made have positioned us very well,” Williams mentioned on Dec. 19, including:

“I need to see inflation come right down to 2% with out doing undue hurt to the labor market. It’s a balancing act.”

In consequence, November’s 2.63% CPI ought to elevate rate-cut odds for Q1 2026.

Nonetheless, the document US authorities shutdown disrupted the Bureau of Labor Statistics’ information assortment. Some economists, together with Robin Brooks, feared that it might have probably distorted November’s annual inflation readings.

That uncertainty helps clarify why crypto didn’t rally up to now months on the cuts themselves.

Jeff Mei, the chief working officer at crypto change BTSE, said BTC may drop to $70,000, and ETH could dip to as little as $2,400 if the Fed retains charges regular all through Q1 2026.

Associated: Bitcoin $70K flush would reset cycle, not confirm new bear market: Analyst

Fed’s “stealth QE” might stabilize crypto costs

On Dec. 1, the Federal Reserve formally ended quantitative tightening, shifting to full rollovers of maturing Treasury and mortgage-backed securities to halt additional reserve drain.

It then launched Reserve Administration Purchases (RMPs), roughly $40 billion in short-term Treasury invoice purchases, to stabilize financial institution reserves and ease cash market stress, a transfer some analysts describe as a type of quantitative easing, or “stealth QE.”

As compared, the Fed’s steadiness sheet elevated by roughly $800 billion each month through the QE in 2020-2021, a interval when the crypto market cap ballooned by over $2.90 trillion.

If RMPs proceed into Q1 2026 at a slower tempo, they might quietly inject liquidity, supporting danger urge for food and stabilizing crypto costs even with out aggressive charge cuts.

“This implies Bitcoin may climb to $92,000-$98,000, supported by ongoing ETF inflows surpassing $50 billion and institutional accumulation,” wrote Mei, including:

“Ethereum may push towards $3,600, benefiting from current layer-2 scaling enhancements and restaking yields that appeal to DeFi customers.

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