Traders drastically reduced their expectations for Federal Reserve interest rate cuts following the U.S. President Donald Trump’s announcement to raise tariffs on China while deferring broader tariff increases on most other nations for 90 days.
The CME FedWatch data indicates a steep decline in the likelihood of a Federal Reserve cut in interest rates, dropping from yesterday’s 60% to 15% for May. This adjustment reflects Trump’s temporary tariff suspension alongside insights from the March FOMC minutes.
Market participants focusing on futures tied to the Fed’s policy rate now anticipate that the Federal Reserve will hold off on cutting rates until June, projecting only a cumulative reduction of 75 basis points throughout the year.
Earlier that day, investor anxiety spurred by turbulence in the stock markets and a surge in Treasury yields had led traders to heavily favor an initiation of rate cuts in May, predicting four or more quarter-point reductions in 2025 to stave off a potential economic slowdown.
