Cryptocurrencies rebounded this morning after sustaining heavy losses this week following the Federal Reserve's final meeting of the year on Wednesday. The meeting included a cut of 25 basis points in interest rates and more hawkish rhetoric from Fed chair Jerome Powell that seemed to catch investors off guard.

Bitcoin (CRYPTO: BTC) , a bellwether for the sector, had fallen as much as 10% yesterday but was only down less than 1% from late afternoon yesterday. It traded around $97,300 as of 11:33 a.m. ET on Friday. XRP (CRYPTO: XRP) also recovered most of its losses from Thursday after being down as much as 9%. Shiba Inu (CRYPTO: SHIB) had fallen as much as 16% yesterday but more recently was only down about 4%.

A lump of coal from the Fed? Or a complacent market?

On Wednesday, the Fed concluded its final meeting of the year and lowered interest rates by 25 basis points, which nearly all traders expected. During his press conference, Powell said, "We're going to be cautious about further cuts." Fed officials now expect to lower rates only twice in 2025, down from a projection of four in September.

Some may have interpreted this as Powell and the Fed handing the market a lump of coal for Christmas, but I was surprised to see the market sell off as harshly as it did. The market certainly looks overvalued. However, Powell's comments and the Fed's new projections should not have surprised those paying attention.

Inflation is still above the Fed's preferred 2% target, and the labor market remains strong. And Fed officials seem to be taking a wait-and-see approach to President-elect Donald Trump's policies. Some worry that Trump's proposed tax cuts and tariffs may reignite inflation.

Even more bizarre is that only a week ago, CME Group 's FedWatch tool showed that roughly 33% of traders were betting on the federal funds rate to be lowered to a range of 3.75% to 4%, while 27% of traders expected the rate to end 2025 at 4% to 4.25%.

Now, about 34.5% of traders expect the federal funds rate to end 2025 inside a range of 4% to 4.25%. The probabilities have changed but not by very much.

The market had gotten frothy, so I'm guessing investors didn't need much reason to sell after an incredible two years of returns. The trajectory of interest rates has significantly affected crypto -- the sector seems to benefit from more expected rate cuts.

Luckily, the market got some relief this morning after the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) Index, increased 0.3% in November, slightly below expectations. The PCE, which strips out more-volatile food and energy prices, is up 2.4% year over year, also slightly below expectations.