Fed's Split Between Doves and Hawks Fuels Crypto's Unsteady Surge

Cryptocurrency prices jumped on Friday after John Williams, President of the New York Federal Reserve, suggested a possible interest rate reduction in December. This sparked renewed hopes that the Federal Reserve might soon loosen its monetary policy to tackle ongoing inflation issues. Williams, who holds a voting position on the Federal Open Market Committee (FOMC), described current policy as "somewhat restrictive," but pointed out there is "potential for further adjustments soon" to move closer to a neutral stance

. His comments, made during an event hosted by the Central Bank of Chile, led traders to increase their expectations to nearly a 60% chance of a 25-basis-point rate cut at the December 9-10 meeting .

This development affected various asset classes, with digital currencies such as

and bouncing back after experiencing significant outflows over the past week. Michael Hartnett of Bank of America, a leading strategist, argued that the recent 35% drop in Bitcoin and 45% slide in Ethereum reflected a liquidity squeeze that might push the Fed to act. "The earliest signs of a Fed reversal will show up in crypto, which is at the forefront of liquidity and speculation," Hartnett stated in his weekly analysis . He also pointed to $2.2 billion in crypto fund withdrawals this week—the second-highest ever—as a sign of increasing caution among investors.

However, not every Fed official echoed Williams' more accommodative stance. Lorie Logan, President of the Dallas Fed and a future FOMC voter in 2026, called for restraint and cautioned that additional rate cuts could jeopardize progress on inflation. "It's premature to determine how restrictive the current policy really is," she remarked, adding that the FOMC's recent 25-basis-point cuts already risked overstimulating the economy

. Her statements highlighted growing divisions within the FOMC, as the October meeting records showed policymakers split between holding steady, a 25-basis-point cut, or even a 50-basis-point reduction.

Adding further complexity, Mohamed El-Erian, a former adviser to the Fed, warned investors not to overinterpret Williams' comments. He cautioned that the Fed's reliance on incoming data and the lack of October inflation figures—delayed by the Bureau of Labor Statistics—could prolong internal disagreements

. "Powell still faces a tough challenge persuading the FOMC to avoid a contentious decision in December," El-Erian posted on social media, pointing out that policy hawks like Susan Collins, President of the Boston Fed, have already expressed doubts about further cuts .

Despite ongoing debate, major U.S. stock indexes inched higher as investors factored in a nearly 70% likelihood of a December rate cut, according to the CME FedWatch Tool. The crypto rally, though, remained tentative, with Hartnett observing that a successful rate reduction would likely boost demand for zero-coupon Treasuries, but also warning that liquidity concerns could re-emerge if the Fed postpones action

.