The Federal Reserve's two interest rate cuts in the first half of the year have become a certainty, and Fitch has raised its US economic growth forecast.

Fitch’s latest economic forecast reveals an important signal: the Federal Reserve will cut interest rates twice in the first half of 2026, with the federal funds rate expected to be lowered to 3.25%. At the same time, this rating agency has also raised its outlook for U.S. economic growth, believing that the labor market will remain stable. This forecast is highly significant for the crypto market because rate cuts usually mean increased liquidity and a preference for risk assets.

Signs of Improvement in Economic Fundamentals

Fitch has raised its forecast for U.S. economic growth by 0.3 percentage points, with the 2025 GDP growth outlook revised from 1.8% to 2.1%, and 2026 from 1.9% to 2.0%. This adjustment was made after incorporating economic data delayed by the government shutdown at the end of last year, indicating that the actual U.S. economic performance is better than previously expected.

Why the Economic Outlook Has Improved

The completeness of economic data allows markets and institutions to assess the U.S. economy more accurately. Although the increase seems modest, this upward revision reflects that the U.S. economy remains resilient, and consumption and investment have not declined sharply as feared.

Inflationary Pressures Become the Main Challenge in 2026

Fitch expects the inflation rate to rise to 3.0% in December 2025, up from 2.7% in November. More importantly, inflation pressures in 2026 may intensify further, with a forecast of 3.2% by the end of the year. This is mainly due to delayed pass-through effects of tariffs.

Tariff Factors Will Continue to Evolve

The transmission effects of tariffs usually take time to manifest, meaning that the full inflation impact may not be seen in the first half of 2026, but pressures will gradually release in the second half. This also explains why the Federal Reserve dares to cut rates in the first half—because inflation pressures have not fully materialized yet.

Employment Market Will Remain Stable

Fitch forecasts an average unemployment rate of 4.6% in 2026, close to recent levels. This suggests that although employment growth is slowing, the deceleration in labor force growth is also happening simultaneously, offsetting each other and keeping the unemployment rate stable.

Stable Employment Supports Rate Cuts

Maintaining an unemployment rate of around 4.6% provides the Fed with the confidence to cut rates. There’s no need to worry excessively about the labor market overheating and causing inflation, nor to fear worsening employment. This is a key prerequisite for the Fed to implement two rate cuts in the first half of the year.

The Pace of Federal Reserve Rate Cuts Is Basically Set

According to Fitch’s forecast, the Fed will cut rates twice in the first half of 2026, each by 25 basis points, lowering the upper limit of the federal funds rate from the current level to 3.25%. This indicates a relatively moderate pace of rate cuts but a clear direction.

Potential Impact on the Crypto Market

Rate cuts typically mean increased liquidity, rising dollar depreciation expectations, and enhanced attractiveness of risk assets. For cryptocurrencies, this is usually a positive signal. However, it’s important to note that rising inflation pressures in the second half of 2026 could constrain further rate cuts and might even trigger the Fed to reassess its policy stance.

Summary

Fitch’s forecast sketches the basic outline of the U.S. economy in 2026: moderate economic growth, stable employment, and delayed inflation pressures. Against this backdrop, the two rate cuts in the first half of the year are essentially a certainty. For the crypto market, rate cut expectations are generally positive, but inflation pressures in the second half could introduce uncertainties. Investors should closely monitor actual inflation data in the second half of 2026, as this will determine whether the Fed continues to cut rates or pauses policy adjustments.