Emre Yumlu 
Investors are predicting that the Fed will cut rates five times this year, amid growing recession fears triggered by U.S. tariff policies. Markets are also pricing in the possibility of an emergency rate cut ahead of schedule.
According to overnight interest rate swaps, a total of 125 basis points of easing is priced in by year-end. This corresponds to five quarter-point cuts. As of last week, only three cuts were fully priced. The swap market also shows about a 40% probability that the Fed could cut rates by 25 basis points before its next meeting on May 7.
Bonds Shine, Equities Slide
Investors are moving away from risky assets and flocking to bonds, causing yields to fall sharply. The U.S. two-year bond yield dropped 22 basis points to 3.43% on Monday. This represents a total decline of about 50 basis points since the tariffs were announced on Wednesday.
A similar situation occurred in Germany. The two-year German bond yield fell 20 basis points, dropping just above 1.60%, the lowest since October 2022. Safe-haven currencies like the yen and the Swiss franc appreciated against the dollar.
Recession Signals Are Strengthening
In a recent report, JPMorgan Chase & Co. predicted that the U.S. economy will fall into a recession this year. The bank’s chief economist Michael Feroli forecasts the first rate cut in June, followed by one cut at each meeting through January 2026.
Goldman Sachs economists also revised their forecasts last week. Now, three cuts are the base case for both the Fed and the European Central Bank (ECB) this year.
As governments around the world speed up negotiations with Washington to ease tariffs, markets are facing heavy selloffs amid uncertainty.
Similar expectations have formed for the European Central Bank and the Bank of England. For both institutions, three quarter-point cuts are priced in by year-end, with about a 50% chance of a fourth cut.
Powell: “We Won’t Rush”
Fed Chair Jerome Powell stated last Friday that, despite market turmoil, there is no immediate plan for a rate cut. Powell emphasized that inflation remains high and that tariffs could lead to temporary price increases.
“Don’t expect the Fed to rescue the markets with an emergency cut,” said Elias Haddad from Brown Brothers Harriman, adding that this meltdown is purely policy-driven and doesn’t warrant Fed intervention.
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