Fed Rate Cut and RMP Pivot Shift Liquidity for Crypto Assets

• Powell’s RMP shift signals renewed balance-sheet growth that supports short-term liquidity.
• Bitcoin tracks liquidity, making RMP flows more important than the December rate cut.
• RMP’s $40B monthly purchases boost U.S. liquidity and offer support for major crypto assets.

The Federal Reserve’s December meeting delivered more than a routine rate cut. Chair Jerome Powell paired a widely expected 25-basis-point reduction with a new bond-buying program that reopens the debate over U.S. liquidity and its impact on Bitcoin and altcoins. 

The move signals a shift from aggressive balance-sheet shrinkage toward cautious balance-sheet growth as crypto prices struggle after a sharp autumn selloff.

Fed Rate Cut, Dot Plot, and a Narrow Policy Path

The Federal Open Market Committee cut the federal funds target range to 3.50%–3.75%, its third straight reduction since September. The decision came in a 9–3 vote, with two officials opposing any cut and one favoring a larger move, underscoring deeper divisions inside the Fed.

The meeting acknowledged softer labor conditions and “somewhat elevated” inflation, while dropping earlier language that called unemployment “low.” Policymakers signaled a likely pause, stressing that future adjustments will depend on incoming data rather than a preset path.

Updated projections, or the dot plot, now show a median expectation for only one additional quarter-point cut in 2026. Several policymakers still see no further easing next year, while a small group even pencil in higher rates, highlighting uncertainty around the late-cycle policy path.

For risk assets, the signal mixes short-term relief with limited longer-term support. Rate cuts have resumed, but the Fed does not signal a long easing cycle unless growth weakens more sharply. That backdrop pushes attention toward liquidity tools rather than the policy rate itself.

Reserve Management Purchases and the Liquidity Cycle

Alongside the cut, the Fed introduced “Reserve Management Purchases,” or RMPs, which instruct the New York Fed’s trading desk to buy Treasury bills and short-dated notes. The directive aims to keep reserves “ample” as shrinking balance-sheet assets and seasonal Treasury flows tighten funding markets.

The New York Fed plans about $40 billion in Treasury bill purchases over the next 30 days, starting December 12. Officials expect an elevated pace until April, when tax payments usually drain reserves into the Treasury General Account, and then a slower run rate afterward.

RMPs arrive after three years of quantitative tightening, which removed roughly $2.4 trillion from the Fed’s balance sheet and pushed the overnight reverse repo facility from a $2 trillion peak toward zero. At the same time, the Treasury’s cash balance sits near $900 billion, which absorbs liquidity from the banking system.

Fed officials insist that RMPs differ from crisis-era quantitative easing. They describe the program as a technical tool that allows assets to grow more slowly than nominal GDP, so the asset-to-GDP ratio keeps edging lower, though at a more modest pace than under full QT.

Crypto traders view the same program through a different lens. Many see any renewed asset purchases as a pivot away from balance-sheet contraction and therefore as a constructive shift for global liquidity and digital assets.

Related: Fed Cuts Rate Cautiously As Labor Data Shapes Future Policy

Bitcoin, Altcoins, and the New U.S. Liquidity Backdrop

Bitcoin reacted to the rate cut, with the coin briefly trading above $94,000 before slipping below $90,000, even as U.S. stocks posted their strongest Fed-day gain since March. Ether and major altcoins also traded lower, showing weaker risk appetite in crypto than in equities.

The muted response reflects a broader pattern. Research on past cycles shows Bitcoin tracks global liquidity more closely than it tracks individual policy moves, with a strong correlation to central bank balance sheets over rolling 12-month windows.

Under the Fed’s new plan, the balance sheet is expected to rise modestly into 2026 as RMPs and agency reinvestments add short-term Treasuries. 

For Bitcoin, that liquidity path matters more than a single quarter-point cut. Analysts argue that a full reversal of the recent liquidity decline would likely support a retest of prior highs above $100,000, while a smaller liquidity boost may cap rallies below those levels. Altcoins usually react later after a confirmed Bitcoin uptrend before they attract sustained inflows.