The Federal Reserve signals a hawkish stance, further cooling short-term interest rate cut expectations

Federal Reserve St. Louis President James Bullard delivered a speech on the evening of January 13, providing an important interpretation of the recent policy shift. While he supported the rate cut decision in December, he explicitly stated that there are few reasons to further ease policy in the short term, aligning with the hawkish stance of other Federal Reserve officials. The US December CPI data released on the same day also supports this assessment.

Key Points of Bullard’s Speech

Why support December rate cuts but not expect further easing

Bullard’s logic for supporting the December rate cut is clear: at that time, the labor market faced slightly elevated risks, and the risk of accelerating inflation was easing. This was a rational choice when balancing two objectives—he prioritized protecting employment over inflation risks.

But the situation has now changed. He pointed out that inflation is closer to 3% rather than the 2% target, and although it is expected to decline this year, this indicates that inflation remains sticky. More importantly, he finds the inflation data released today encouraging, suggesting inflation will further approach 2%. Based on these observations, his conclusion is straightforward: there are few reasons to further loosen policy in the short term.

Policy signals’ consistency

This is not just Bullard’s personal view. On the same morning, Federal Reserve New York President John Williams also stated that under current economic conditions, there is no reason to cut rates in the near term. The attitudes of these two Fed officials show strong consistency—the Fed’s policy stance is becoming more hawkish, and the rate cut cycle may have already come to an end.

Practical Implications for the Market

Shift in rate cut expectations

Bullard’s speech marks an important shift in the Fed’s policy outlook. The market had been optimistic about rate cuts in 2026, but the “hawkish rate cuts” in December (cutting rates while indicating no short-term reason to continue easing) suggest the Fed has begun to tighten policy guidance. Bullard’s remarks further confirm this trend.

Pressure on the crypto market

This is not good news for crypto assets. The hawkish stance of the Fed implies:

• Increased pressure for the US dollar to appreciate, and non-USD assets like Bitcoin are typically under pressure when the dollar is strong
• Rising interest rate expectations, reducing the relative attractiveness of non-yielding assets like Bitcoin
• Overall liquidity environment for risk assets may tighten

Historically, when the Fed shifts from dovish to hawkish, crypto markets often face correction pressures.

Future Focus

The timing of Bullard’s speech is critical—just after the release of December CPI data. This means his comments are based on the latest inflation figures. If the CPI data is indeed encouraging (below expectations or showing month-over-month improvement), the Fed’s hawkish stance will be further reinforced.

The key follow-up is whether the Fed will adjust its policy guidance in upcoming FOMC meetings and how market expectations for rate cuts will be revised.

Summary

Bullard’s speech clearly conveys a message: the Fed’s rate cut cycle is nearing its end, and there will be no further easing in the short term. This aligns with Williams’ hawkish attitude and reflects the Fed’s updated view on inflation. For the crypto market, this means increased pressure for dollar appreciation and potential correction of risk assets. Investors should prepare for a continued hawkish tone from the Fed.