Global markets are turmoil, and investors are betting that the Federal Reserve will be forced to force aggressive interest rate cuts as financial stress intensifies across asset classes.
Markets will fall as investors believe the Fed will have to cut prices in 2025
Bitcoin (BTC) fell 10% to around $74,500 on Monday, but the US stock market is on track with its worst three-day decline. The S&P 500 futures have fallen nearly 5% in one session, bringing the total loss since last week to nearly 15%.
With riskier assets under pressure, investors are increasingly appreciated for the dramatic reversal pricing by the Federal Reserve, which could lead to up to five interest rate cuts in 2025, Futures Markets shows.
Credit Market Signal Fed has no other options
The CME FedWatch tool shows investors have a 61% chance of 25 basis rates at the next Fed meeting on May 7th. The market expects prices to fall from 3.00%-3.25% by the end of the year.
Historically, the Fed has responded to market slump with aggressive policy easing, including interest rate cuts, bond purchases and liquidity injections. This time, it appears that investors are positioning a similar playbook. This is because the financial situation is rapidly growing stronger.
The growing belief in the market is that the Federal Reserve cannot withstand pressure for a long time. The decline in asset prices, rising credit stress, and the need for US government refinancing suggest that policies need to be changed faster than slower.
We will see if the Fed will meet these expectations at its May meeting, or if the market will have to wait for further deterioration.
But one thing is clear. Financial markets are loudly clear that the Fed’s tightening cycle may already be over, and that the next move could become a rapid competition to cut rates.
*This is not investment advice.
