Traders raise bets on May and June rate cuts amid global trade fears
Market expectations for a Federal Reserve rate cut in May are climbing fast, fueled by fears that President Donald Trump’s newly announced tariffs could push the US economy closer to a recession.
On Thursday, traders placed a 24% bet on a rate cut at the Fed’s May meeting, up sharply from just 11% the day before, according to the CME FedWatch Tool. A week ago, the odds stood at around 12%.
The sudden jump followed Trump’s unveiling of a new round of sweeping tariffs, including a minimum 10% baseline on all imports and top rates reaching 49%, moves that have reignited concerns about a global trade war.
“Even if tariffs are ultimately reduced by year-end, the near-term shock and associated uncertainty is likely to drive a near-term slowdown in the US economy and reduce full-year 2025 growth to closer to or below 1%,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
“We would also expect the Federal Reserve to deliver 75–100bps of rate cuts over the remainder of 2025.”
Recession risks rise
The tariff announcement triggered a sell-off in US stock index futures and shook investor confidence across the board. While the Fed left rates unchanged in March, markets are now pricing in a more aggressive path ahead: three cuts in 2025 are widely expected, and odds for a fourth jumped to 30%.
The likelihood of a back-to-back May and June quarter-point cut has also risen, climbing to 15%. Though June’s cut probability slipped slightly to 56.5% from 60.6% the day prior, economists say the tone of incoming policy signals and data will be critical.
Goldman Sachs responded to the latest developments by raising its 12-month recession probability from 20% to 35%, noting higher inflation and unemployment expectations, and lowering its economic growth forecast.
JPMorgan economists are even more bearish, estimating a 40% chance of recession within the year.
The UCLA Anderson School of Management issued its first-ever official “Recession Watch” earlier this month – marking a historic moment in its 73-year forecasting history.
In the report, economist Clement Bohr took direct aim at Trump’s economic agenda, warning that the administration’s approach could backfire.
“Be careful what you wish for because, if all your wishes come true, you could very well be the author of a deep recession,” Bohr wrote.
Read next: Fed makes new projections amid high inflation environment
Bohr said a downturn remains “entirely avoidable” if Trump’s signature policies, including the most severe tariffs in nearly a century and the dismantling of public sector institutions under Elon Musk’s Department of Government Efficiency (DOGE), are scaled back or introduced more gradually.
Moody’s Analytics chief economist Mark Zandi also sounded the alarm in a March 19 CNN interview, saying it “feels like we’re being pushed into recession.”
“The recession risks are uncomfortably high and they're rising,” Zandi said. “I believe the odds of a recession are less than 50-50, but it really does depend on the president and what he does here.”
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