Crypto market rally at risk as top Fed official warns on interest rates

The crypto market rose slightly today, Dec. 19, as investors bought the dip following the Bank of Japan’s interest rate hike and the U.S. release of encouraging consumer inflation data.

Bitcoin (BTC) price rose to $88,000, while the market capitalization of all tokens rose to $2.97 trillion. Some of the top gainers were tokens like Bitcoin Cash, Zcash, and Morpho.

Crypto market rally at risk after Fed official warns on interest rates

The ongoing crypto market rebound could be at risk after John Williams, the head of the New York Federal Reserve, warned that he does not see the need for another interest rate hike despite recent macroeconomic data.

A report released by the Bureau of Labor Statistics on Tuesday showed that the unemployment rate rose to 4.6% in November, the highest level in years.

On the other hand, a separate report showed that the headline Consumer Price Index (CPI) dropped to 2.6% in November. Core inflation, which excludes the volatile food and energy prices, dropped to 2.7% in the month. This inflation may continue to fall as crude oil prices remain below the $60 support level.

In theory, falling inflation and rising unemployment should prompt additional interest rate cuts. But in his statement, Williams said:

“I don’t personally have a sense of urgency to need to act further on monetary policy right now, because I think the cuts we’ve made have positioned us really well.”

His statement came a week after the Federal Reserve slashed interest rates and signaled it would raise rates only once in 2026. Polymarket data shows that the odds that the bank will deliver two cuts next year are 22%.

Bitcoin and the crypto market tends to do well when the Fed is cutting interest rates and implementing other easy money policies like quantitative easing.

Bank of Japan interest rates are a risk 

Another potential risk that could derail a crypto market rally is the Bank of Japan, which delivered its first interest rate hike in 11 months. It brought the benchmark rate to 0.75%, the highest level in 30 years.

Most importantly, the bank indicated it may continue raising interest rates next year if economic growth continues.

In most cases, risky assets like cryptocurrencies and stocks tend to underperform when the BoJ hikes rates.

The rate hike was already priced in, with odds soaring to 99% on Polymarket before the decision.

Bitcoin price has formed a risky pattern 

Another risk for the crypto market is that the Bitcoin price has formed a bearish flag pattern. This pattern consists of an inverted flagpole and a channel resembling a flag.

Bitcoin’s price remains below all moving averages and the Supertrend indicator, suggesting a bearish breakdown to the key support level at $80,468. A drop below that level will indicate further downside, potentially to the ultimate support at $75,000.