Fed’s 2026 policy outlook, $2b liquidation risk drive Bitcoin volatility

The Federal Open Market Committee meeting on Dec. 10 centered on Federal Reserve Chair Jerome Powell’s guidance for the 2026 policy path, with major banks diverging on projections for next year’s easing trajectory, according to market analysis from The Coin Republic.

Summary

• The December 10 FOMC meeting focused heavily on Powell’s guidance for 2026.
• Bitcoin volatility was expected to hinge on Powell’s tone rather than the widely anticipated rate cut.
• Powell’s pending 2026 exit and rising internal Fed dissents added communication uncertainty.

Markets had priced in the widely expected near-term rate cut, shifting focus to the Federal Reserve’s Summary of Economic Projections and Powell’s press conference framing of 2026 policy, the report stated.

September’s dot plot had signaled only one additional cut next year, and analysts expected updated guidance to shift toward neutral or hawkish territory, telegraphing an extended pause through early 2026 before resuming cuts.

Major banks split on their 2026 forecasts in the days before the meeting, according to the analysis. Some institutions projected additional cuts in the first half of the year, while others anticipated a hold through the first quarter with easing later tied to leadership changes. A hawkish outlier forecast no cuts for an extended period.

The divergence in institutional forecasts highlighted repricing risk, with reports showing investors shifting focus to whether the Fed would signal only a limited easing runway for 2026. Updated projections implying a couple of cuts next year, followed by a flatter path, represented the kind of hawkish-neutral guidance that could pressure risk assets, the report stated.

Powell’s term expires in mid-2026, adding uncertainty around forward guidance and making long-term projections unusually speculative, according to the analysis. Communication risk also escalated around the 2026 timeline, as dissents would likely become more common next year, raising the odds that the dot plot and press conference commentary would be the market-moving event rather than the policy rate itself.

Bitcoin (BTC) tends to react sharply to shifts in Federal Reserve guidance rather than to rate cuts that markets have already priced in, analysts noted. Powell was expected to stress that further easing would require either cooler inflation or a weaker labor market—conditions that remain too firm to justify aggressive cuts in 2026.

Market-structure data also showed two major short-liquidation zones sitting just above current BTC prices. If Bitcoin rises into those levels, large clusters of leveraged shorts could be forced to buy back positions, potentially amplifying volatility. While the notional exposure in these zones appears sizable, actual forced buying would vary depending on order-book depth and could be partially offset by new shorts or profit-taking sellers.

If BTC cleanly breaks through the first cluster, momentum alone could carry it into the second. Penetrating the larger cluster could trigger a squeeze strong enough to briefly push prices toward major psychological levels before cooling.

Analysts emphasized that the scale of any move hinges on real-time liquidity conditions—how thick order books are, whether ETFs and spot desks are net buyers or sellers, how quickly funding rates adjust, and whether large sellers defend round numbers. Historically, breaking through a sizeable liquidation pocket has added a few extra percentage points of upside overshoot during fast market moves.

Bitcoin price action following the FOMC meeting reflects the interaction between Powell’s 2026 guidance and the structure of leveraged positions. Dovish commentary suggesting more cuts next year could trigger an initial move through the lower liquidation zone, setting off a cascade.

Hawkish guidance projecting an extended pause could pressure prices lower, moving them away from liquidation trigger zones and potentially activating long-liquidation clusters below current levels instead, the report stated.