Fed Policy and Weak Consumer Data Cap Bitcoin’s Upside

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Fed target rate probabilities for Jan. 2026 FOMC. Source: CME FedWatch Tool

Liquidity conditions remain a key headwind for Bitcoin. Throughout most of 2025, the Federal Reserve has reduced its balance sheet, draining liquidity from financial markets and limiting risk-on assets. Although recent signs of economic slowing have raised hopes for a softer stance, traders now doubt rates will fall below 3.5% in 2026. At the same time, weak earnings outlooks from major US retailers point to softer consumer demand—historically a bearish signal for high-risk assets like Bitcoin.