Traders betting Fed will cut rates at least 4 times this year to bail out economy

Traders are now speculating that the Federal Reserve will implement interest rate cuts multiple times this year, in response to concerns over President Donald Trump’s tariffs potentially pushing the U.S. economy into a recession. The probability of five quarter-point rate reductions occurring in 2025 has surged to 37.9%, a significant increase from the previous day’s 18.3%, as reported by data from the CME Group. This would result in the federal funds rate dropping to a range of 3.00% to 3.25%, down from its current level of 4.25% to 4.50% established in December.

Additionally, markets are pricing in a 32% chance that the federal funds rate will decrease to a range of 3.25% to 3.50%, indicating the possibility of four quarter-point cuts by the Fed. Moreover, the likelihood of a half-percentage point cut in June has also risen to 43.8% from 15.9% previously.

The growing expectation of aggressive rate cuts by the Federal Reserve stems from concerns surrounding the impact of Trump’s tariffs on global trade, which have dampened economic growth and inflation forecasts. Investors anticipate that a slowdown in economic activity could prompt the Fed to lower rates in an effort to avert a recession.

However, there are apprehensions about the feasibility of such rate cuts, especially as inflation has yet to reach the Fed’s target of 2%. If the tariffs are implemented, core inflation could potentially exceed 3%, possibly even reaching 5% according to some projections.

Roger W. Ferguson, an economist and former Fed vice chair, expressed skepticism about the likelihood of rate cuts this year, emphasizing the Fed’s obligation to consider inflation in its decision-making process. He suggested that the central bank may opt not to reduce rates in the current economic environment.

In conclusion, the uncertainty surrounding the impact of Trump’s tariffs and their potential consequences on inflation and economic growth have heightened expectations of rate cuts by the Federal Reserve. However, the Fed faces a complex challenge in balancing the need to stimulate the economy with the imperative of maintaining price stability. This delicate balance will likely influence the central bank’s decision-making process in the coming months.