Traders betting Fed will cut rates at least 4 times this year to bail out economy
Traders are closely monitoring the Federal Reserve’s actions as they bet on the possibility of interest rate cuts to counteract the potential negative impacts of President Donald Trump’s tariffs. Recent data from the CME Group shows that the odds of the Fed implementing up to five quarter-point reductions this year have significantly increased, with a 37.9% chance of this scenario playing out.
If these predictions hold true, the federal funds rate could potentially drop to a range of 3.00% to 3.25%, a significant decrease from its current range of 4.25% to 4.50%. Additionally, there is a 32% chance that the rate could fall to 3.25% to 3.50%, indicating that four quarter-point cuts may be in store from the Fed.
The heightened expectations for rate cuts come in the wake of escalating trade tensions and fears of a global trade war sparked by Trump’s tariffs. These developments have dampened economists’ growth and inflation forecasts, leading investors to anticipate a slowdown in economic growth that could prompt the Fed to lower rates in an effort to stave off a recession.
However, concerns remain about the Fed’s ability to effectively navigate this challenging environment. The central bank may face difficulties in cutting rates while inflation rates remain above its 2% target. Forecasts suggest that the implementation of tariffs could push core inflation above 3%, potentially reaching as high as 5%.
Despite the market’s expectations for rate cuts, economist and former Fed vice chair Roger W. Ferguson expressed skepticism about the possibility of any cuts this year. He emphasized the importance of the Fed fulfilling its mandate to manage inflation levels effectively.
In the midst of these uncertainties, CNBC is offering an exclusive event, CNBC Pro LIVE, at the New York Stock Exchange. This event aims to provide expert insights to help investors navigate the ever-changing financial landscape. Subscribers will have the opportunity to attend interactive clinics led by industry experts and network with CNBC talent and other Pro subscribers.
As the markets continue to react to geopolitical developments and economic indicators, the Federal Reserve’s decisions will play a crucial role in shaping the future trajectory of interest rates and the overall economic outlook. Stay tuned for further updates on how these factors may impact your investment strategy.
