Traders expect the US Federal Reserve to slash interest rates another five times this year as the US administration’s trade tariffs ignite fears of a global recession.
Markets are pricing 125 basis points of easing by year end, equivalent to five quarter-point moves, according to overnight interest rate swaps. As recently as last week, just three reductions were fully priced.
The rapid repricing reflects the fear sweeping global markets, with US President Donald Trump showing little appetite to back down on aggressive trade tariffs announced last week. He told reporters on Sunday evening to “forget markets for a second”.
Investors are dumping risk and snapping up bonds, sending yields plummeting. The yield on the US two-year bond, among the most sensitive to monetary policy, fell as much as 22 basis points to 3.43% on Monday, having fallen about 50 basis points in total since Trump announced the levies last Wednesday.
“There is no good news. The markets are getting ugly,” said Michael Brown, senior research strategist at Pepperstone. “A policy pivot, from either the White House, or the Fed, is what the market craves. Neither, for the time being, seems especially likely, leading to more economic, and market, pain being on the cards.”
See also: Trump digs in on tariffs, says deals hinge on even trade balance
Chart: Bloomberg
