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:

• “The impact of tariffs could be greater than expected and have lasting effects on inflation.”

• “The Fed’s job is to prevent these price increases from turning into permanent inflation.”

• “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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It Should Be a Comforting Step for the Economy…

Trump said, “We hope the Fed will lower interest rates. This will provide significant relief for businesses and consumers. Stating that high interest rates are the cause of the slowdown in the economy, he announced that he expects the Fed to enter a period of loosening monetary policy.

The recent slowdown in inflation data and improvements in unemployment data have raised expectations that the Fed may cut interest rates. Market participants expect the Fed to start cutting interest rates in the second quarter of 2025.

Market Divided by Mixed Expectations

After Trump’s announcement, the FED’s interest rate expectations have been on the agenda for a long time. The market expectation was that interest rates would fall in 2025. After the softening of the announced inflation and unemployment data, the FED is likely to cut interest rates. It is said that a possible interest rate cut could start a positive upward momentum in the cryptocurrency sector. In recent years, with the FED’s inflation data increasing, the interest rate hike period was entered and interest rates reached the highest level in recent years. After this interest rate hike, a bear cycle started in the cryptocurrency sector.

FED Interest Rate Cut Expected in the Cryptocurrency Sector.

In the bull sector in 2021, the FED entered a period of tightening monetary policies after rising unemployment and inflation due to the pandemic, and interest rates were raised to the highest levels in history. The interest rates raised by the FED caused the start of the bear season in the cryptocurrency industry. In 2024, FED chair Powel announced the start of normalization in inflation and unemployment data. We are about to end March 2025 and the FED has yet to cut interest rates to meet expectations.

Markets focused on the second quarter of 2025 after the expected rate cut in the first quarter of 2025. In the second quarter of 2025, the markets were expecting a net rate cut by June. With an interest rate cut in the second quarter, it is hoped that the recent declines in cryptocurrencies will end and enter a new uptrend.

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