Emre Yumlu 
With Donald Trump’s new tariffs triggering concerns about a recession, the issue of interest rate cuts has also come to the fore. What do analysts say, what are the expectations?
Markets Expect a Rate Cut: Powell and Trump Face Off
While concerns about a recession have increased following the new tariffs announced by the Trump administration, investors have begun to think that the US Federal Reserve (Fed) may start cutting interest rates earlier. The activity experienced in bond markets in particular clearly shows that expectations for the growth outlook have weakened.
As bond yields fall, investors are focusing on the possibility of a rate cut rather than growth. The 10-year US bond yield fell below 4%, supporting expectations in this direction.
US President Donald Trump made a clear call to Fed Chair Jerome Powell:
“The Fed is taking it slow, it should lower interest rates! Now is the perfect time to lower interest rates.”
However, Powell is cautious about these calls.
The increased uncertainty due to new tariffs creates dual risks such as rising inflation and slowing growth. According to Powell:
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“The impact of tariffs could be greater than expected and have lasting effects on inflation.”
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“The Fed’s job is to prevent these price increases from turning into permanent inflation.”
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“It’s too early to determine the appropriate direction for monetary policy.”
Powell stated that the Fed will guide its policy with clear data and said, “People expect the Fed to tell the truth, and that’s exactly what we’re going to do.”
However, according to Trump, Powell has always been “a latecomer to a rate cut” and that action should be taken more quickly when the economy is so fragile.
However, expectations for a rate cut are rapidly increasing in the markets. According to CME FedWatch Tool data, markets are pricing in an 85% probability of more than three rate cuts by the end of the year. This means an increase well above last week’s expectations. In particular, a rate cut in June stands out as the strongest possibility with a 70% probability. There is a 30% cut expected for the May meeting.
Powell said in his latest statement, “The current uncertainty is likely to continue. It’s the right time to step back and wait for the water to calm down.” He also added that the impact of Trump’s policies will be clearer in a year.
However, experts believe that the economic slowdown triggered by tariffs could force the Fed to cut interest rates. This would be an unconventional policy choice, especially when inflation is still high.
Trump is pushing for a rate cut, while Powell is determined to tread carefully. However, the market is certain that the Fed will eventually cut interest rates to support economic growth.
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