Traders Betting Fed Will Cut Rates
New York, April 4, 2025 – Traders are ramping up bets that the Federal Reserve will slash interest rates at least four times this year, driven by mounting fears that President Donald Trump’s aggressive tariff policies could plunge the U.S. economy into a recession. As of Friday morning, futures markets tracked by CME Group’s FedWatch tool show a 32% chance of the federal funds rate dropping to 3.25%-3.50% by December—implying four quarter-point cuts from its current 4.25%-4.50% range—up from just 15.9% odds a week ago. The shift follows a brutal market reaction to Trump’s April 2 tariffs, with some analysts now dubbing the Fed’s potential moves a “bailout” for an economy teetering on the edge.
A Tariff-Fueled Panic
The surge in rate-cut expectations comes as Trump’s “reciprocal” tariffs—10% across all imports, with 54% on China, 25% on Canada and Mexico, and 20% on the EU—unleashed chaos this week. The S&P 500 cratered 4.8% Thursday, its worst day since June 2020, while the dollar pared gains and gold hit a record $3,167.50. China’s vow of 34% counter-duties by April 10, targeting U.S. oil and soybeans, and the EU’s $28 billion retaliation package have traders bracing for a global trade war that could choke growth. “The Fed’s got no choice—tariffs are a sledgehammer to GDP,” one X user posted, capturing the sentiment driving the bets.
CME data also shows a 43.8% chance of a half-point cut as early as June, up from 15.9% last week, with total 2025 cuts now priced at 100 basis points—some futures even hint at 4.5 reductions, per posts on X. Goldman Sachs, slashing its 2025 GDP forecast to 1.5% from 2% on March 31, now sees a 35% recession risk and predicts three Fed cuts starting in July, a stark pivot from its earlier two-cut outlook. “Tariffs are forcing the Fed’s hand,” a Goldman note warned, projecting a 15% average U.S. tariff rate hike.
Fed Caught in a Bind
The Fed, which last cut rates in December 2024 to the current range, has signaled caution. Chair Jerome Powell, speaking March 19, pegged 2025 at two cuts, citing “solid” growth despite revising GDP down to 1.7% and core inflation up to 2.7%. “We don’t need to rush,” he said, dodging tariff specifics beyond “wide possibilities.” Yet, Thursday’s market rout—Nasdaq down 6%, Tesla off 15%—and Friday’s pre-market jitters (S&P futures -2%) suggest traders see a darker horizon. “Markets are screaming recession louder than the Fed’s willing to admit,” Thierry Wizman of Macquarie Group told Reuters.
Posts on X reflect the tension: “100bps priced in—Powell’s dual mandate is toast if tariffs tank jobs,” one trader wrote, while another mused, “Was this calculated? Tariffs forcing Fed cuts as an unintended win?” The Fed’s next meeting isn’t until May 7, but June’s odds of a big move are spiking as economic data softens—think Stellantis’ 900 layoffs and Toyota’s 20,000-car production drop.
A Bailout or a Bust?
Critics argue four cuts signal a desperate “bailout” for Trump’s policies, not a proactive stance. “The Fed’s being dragged into this mess—tariffs inflate prices, kill growth, and they’ll have to clean it up,” ING’s James Knightley told CNBC. Others, like Capital Economics’ Stephen Brown, see the Fed underestimating tariff-driven inflation, potentially limiting cuts to three or fewer if prices surge past 3%. Markets, though, aren’t waiting for clarity: the 10-year Treasury yield dipped to 4.22%, and traders are piling into dovish bets, with hedge funds loading up on rate-cut plays, per X chatter.
For now, all eyes are on next week’s Consumer Price Index drop—expected Wednesday—and Powell’s Friday speech at the University of Chicago. A soft CPI could lock in June cuts; a hot print might delay the Fed, risking deeper market pain. As Trump’s tariff chaos unfolds, traders are betting the Fed’s cavalry is coming—whether it wants to or not.
