Weak employment data sparks increased expectations of rate cuts; Federal Reserve policy disagreements may determine the direction of liquidity in the crypto market

The US labor market starts 2026 on a weak note. According to the latest data, private sector employment increased by only 41,000 in December, well below market expectations. This follows a decline of 32,000 in November and signals another softening performance. This set of data not only indicates that the economic growth momentum for the new year is weakening but also, more importantly, is triggering fierce disagreements within the Federal Reserve over policy direction. These disagreements have become a key variable influencing liquidity expectations in the crypto market.

A Cold Start for the Employment Market

The true picture behind the data

The December ADP employment report shows that private sector employment increased by 41,000. While this figure appears moderate, it contrasts sharply with expectations from major institutions.

Nela Richardson, Chief Economist at ADP, pointed out that although large employers are contracting, small firms are actively hiring at the end of the year, recovering from layoffs in November. This observation is crucial—it reflects not a broad economic improvement but an increasing divergence between company sizes.

Signals of divergence between large and small businesses

This divergence itself is problematic:

• Large companies: continue to shrink, indicating cautious outlook on economic prospects
• Small firms: experience a short-term hiring rebound at year-end, but this may be seasonal and insufficient to indicate sustained momentum
• Overall trend: hiring activity is “lukewarm,” and the unemployment rate has risen

This is not a sign of rapid economic recovery but a gradual cooling that has not yet worsened sharply.

Internal Policy Disagreements within the Federal Reserve

Where is the disagreement focused?

Recent statements from Federal Reserve Board member Milan show that the current interest rate policy is “significantly restrictive,” exerting tangible drag on the economy. He even explicitly stated that there are ample reasons to expect rate cuts in 2026 “far exceeding 100 basis points.” This is a radical dovish stance, contrasting sharply with some officials who believe policy is already near neutral.

This is not just a matter of personal opinion among officials but reflects a fundamental disagreement within the Fed regarding economic outlook and policy stance:

• Doves (Milan): believe high interest rates are harming the economy and require substantial rate cuts
• Hawks: believe policy is already near neutral and no rapid adjustments are needed
• Disagreement focus: whether monetary policy is overly tight, which depends on actual labor market performance

Employment data as a policy dividing line

This week, the US will release a series of key employment reports, including ADP, JOLTS, initial unemployment claims, and non-farm payrolls. These data will directly influence the Fed’s policy tilt:

• If employment remains resilient: the case for the Fed to pause rate cuts in the short term increases, supporting hawkish views
• If data weakens again: the more aggressive easing stance represented by Milan will be amplified, and expectations for rate cuts will rise

Chain Reaction in the Crypto Market

High sensitivity of liquidity expectations

The crypto market’s reaction to this uncertainty has already manifested. According to CME “Fed Watch” data, the probability of rate cuts in January has increased slightly from 15.5% a week ago to 17.7%. This seemingly small change reflects the market’s reassessment of the interest rate path.

Key points:

• Short-term volatility may amplify: uncertainty about the rate path means liquidity expectations will remain highly sensitive to each employment report
• Medium- to long-term opportunities: if subsequent employment and inflation data point toward a policy shift, the market will reassess the medium- and long-term liquidity environment

The supporting logic for “monetary property” assets like Bitcoin

If expectations for rate cuts further intensify, assets with “monetary attributes” such as Bitcoin will find structural support. This is not based on technical or sentiment factors but on an improvement in the fundamental liquidity environment—that is a deeper source of support.

Summary

The “cold start” in the US employment market is no longer an isolated event; it is becoming a trigger for policy disagreements within the Federal Reserve. These disagreements will directly determine the liquidity environment in 2026.

Key points:

1. Weak employment data is a fact: 41,000 increase far below expectations, with growing divergence between company sizes
2. Policy disagreements are widening: the differences between dovish and hawkish views are reflected in concrete numbers (rate cuts possibly exceeding 100 basis points)
3. This week’s data is critical: intensive employment reports will directly influence the Fed’s tilt
4. Crypto markets face both opportunities and risks: short-term volatility may increase, but if rate cut expectations are confirmed, liquidity conditions will significantly improve

For investors, the key is not just a single data point but how these data shift the internal policy balance within the Fed. The direction of employment data will determine whether markets move toward “maintaining high rates” or “policy turning to easing.”