In the aftermath of President Donald Trump’s stunning April 2 announcement that the U.S. is placing tariffs ranging from 10% to 50% on global trading partners, a persistent question has lingered: Will the resulting economic turmoil spur the Federal Reserve to accelerate its widely anticipated interest rate cuts in 2025?
On April 1, the day before the tariff announcement, investors put the odds at 77% that the Fed would cut the benchmark federal funds rate by June, according to the CME FedWatch Tool, which tracks Fed funds futures contracts. As of Monday morning, CME Group data showed a 97% chance of a rate cut by June.
Many investors think a rate cut could come sooner. CME data accessed Monday reveals that 34% of interest rate traders think that the Fed will cut the benchmark interest rate by 25 basis points at its Federal Open Market Committee (FOMC) meeting on May 7.
The shift in futures trading sentiment is surely tied to the aftershocks of the Trump tariff announcement, with global markets still reeling on Monday. Japan’s Nikkei 225 index fell close to 8% on Monday, while Hong Kong’s Hang Seng Index dropped a whopping 13.2%.
In the U.S., the Dow Jones Industrial Average is down more than 10% since the market closed on April 2, just prior to Trump’s speech.
The market freefall has even prompted some investors to predict an emergency Fed rate cut prior to its next FOMC meeting.
Polymarket, a cryptocurrency-based prediction market, pegged the likelihood of an emergency April rate cut at 24% as of Monday morning.
The Fed’s Board of Governors is meeting Monday morning in a closed session. While the exact scope of the meeting is unclear, the official notice released April 3 states that the board will review and determine the “advance and discount rates to be charged by the Federal Reserve Banks.”
Trump, for his part, advocated for a rate cut in a Friday post on his social media platform Truth Social.
“This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates,” Trump wrote. “He is always ‘late,’ but he could now change his image, and quickly.”
