Rising Bets on Fed Rate Cuts as Recession Fears Intensify

Traders are increasingly betting on an emergency interest rate cut from the Federal Reserve as concerns about a looming recession intensify.

The recent turmoil in the stock market, which has wiped out trillions of dollars in value, is fueling speculation that the central bank might act ahead of schedule.

One of the most telling signs comes from the prediction platform Kalshi, where contracts betting on two emergency rate cuts this year have surged to a 10% probability. This marks a dramatic change from just a week ago, when the odds were nearly zero. The last time the Fed made such an emergency move was in March 2020, when it cut rates by 50 basis points amid the COVID-19 crisis.

Futures markets also reflect growing uncertainty, with projections of up to five rate cuts by year’s end. Investors are becoming increasingly wary of rapid economic deterioration, fearing that the Fed may be forced to intervene before its regular meetings. Some speculate that political motives could also be influencing the situation, with theories suggesting that the Trump administration might be aiming to induce a recession to lower inflation and interest rates.

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Former President Trump recently voiced his opinion, pushing for immediate rate cuts while highlighting the supposed economic benefits of lower oil and food prices. Meanwhile, economic experts are divided. Larry Tentarelli, a strategist, sees a 50% chance of a recession in 2025 if trade tensions persist. Goldman Sachs and JPMorgan have also raised their recession odds to 45% and 60%, respectively.

Not everyone buys into the idea of deliberate economic manipulation. Ed Yardeni, a seasoned market analyst, rejects the notion that the administration is engineering a downturn, but he acknowledges that some believe a weaker dollar and increased tariffs could result in lower inflation and more lenient monetary policy.

The rapid sell-off in the stock market is also a growing concern, with the S&P 500 recently seeing one of its fastest declines. Many American households are feeling the impact, as over 60% of adults have some investment in the stock market, according to Gallup. A significant portion of this exposure comes from Baby Boomers, whose retirement savings could be severely affected if the downturn continues.

As the economic landscape becomes increasingly uncertain, the debate over whether the downturn is intentional or a consequence of broader market forces remains unresolved

Alexander Stefanov