The trader works on the New York Stock Exchange floor during a morning trading in New York City on April 3, 2025.
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Traders are betting that the Federal Reserve will cut interest rates at least four times this year, as President Donald Trump’s tariffs could put the US in a recession.
According to data from CME Group on Friday morning, the probability of a five-quarter cut this year increased to 37.9% from 18.3% a day ago. This will reduce the federal funding rate from 3.00% to 3.25%, down from 4.25% since December to 4.50%.
Additionally, the market is priced at around 32%. The federal funding rate has fallen from 3.25% to 3.50%, meaning a quarter-point reduction from the Fed.
At the same time, the possibility of a half-cent point trim coming in June also jumped, moving from 15.9% before to 43.8%.
The implicit odds of the Federal Reserve aggressively cutting after Trump’s tariffs raised fears about the world trade war and hurt economists’ predictions about both growth and inflation. Investors hope that slowing economic growth could spur the Fed to lower bids to avoid a recession.
But many worry that the Fed has a tougher path ahead of it, as central banks have to cut rates in an environment where inflation has not yet fallen to the 2% target. If implemented, tariffs are expected to promote 3% core inflation, perhaps as high as 5%, according to some forecasts.
On Friday, economist and former Federal Reserve vice-chairman Roger W. Ferguson told CNBC that the central bank may not be cut at all this year.
– CNBC’s Jeff Cox contributed to this report.
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