The current market sentiment indicates a 50% likelihood of a U.S. recession occurring by June 2025, a significant increase from just 10% in July, according to Bloomberg’s indicator with a possibility of a soft landing at an equal rate.
Additionally, the market expected that there is a 50% probability that the Federal Reserve will implement rate cuts totaling at least 200 basis points within the next eight months, a much aggressive move compared to the Fed’s projection of 150 basis points in cuts by the end of 2025.
The uptick in recession expectations and anticipated rate adjustments follows a noteworthy 50 basis points rate reduction last Wednesday, which presented the most substantial surprise for markets since 2008. These developments collectively signal that the market is factoring in the imminent possibility of an economic downturn.
According to the CME FedWatch Tool, the market is now giving equal odds to a quarter and a half point rate cut at the next meeting in November, while odds for December are seen at 50% for a 75 bps rate cut and 27% for a 50 bps cut.
