In April 2025, the Trump administration's tariff stick once again shocked global markets. US stocks plummeted, and crypto assets were in a bloodbath, with Bitcoin dropping over 10% in two days and Ethereum plunging 20% at one point, with liquidations reaching $1.6 billion in 24 hours. Investors were panic-stricken, turning their eyes to the Federal Reserve, hoping for an interest rate cut to rescue the market. However, the Fed's silence was unsettling: Where exactly is the critical point for rate cuts? Under the double pressure of inflation concerns and economic strain, when will the Fed loosen its policy? This is not just a data game, but a contest of market confidence and macroeconomic strategy.
Historical Reference: The Trigger Code for Rate Cuts
The Federal Reserve's decision to cut rates has never been arbitrary, but a carefully considered choice during crises or economic turning points. Looking back at key moments in recent years, we can extract the logic behind rate cuts from historical scripts and provide a reference for the current tariff crisis. Here are detailed analyses of three landmark rate cuts, revealing their background and motivations.
External Voices: Consensus Amid Divergence
There is a significant market divergence in judging the timing of the Federal Reserve's interest rate cut. BlackRock CEO Larry Fink poured cold water on expectations: "The possibility of the Federal Reserve cutting rates four to five times this year is zero, and interest rates may rise instead of fall." He believes Powell's tough stance stems from stable non-farm employment data and inflation concerns, making it difficult to exhaust policy "bullets" in the short term. In contrast, Goldman Sachs predicts that without a recession, the Federal Reserve may cut rates three times consecutively from June, lowering to 3.5%-3.75%; if a recession is triggered, the reduction could reach 200 basis points.
The Federal Reserve's internal anxiety is also evident. On April 8, Chicago Fed President Goolsbee stated: "The US economic hard data performance is unprecedented, but tariffs and countermeasures may reappear supply chain disruptions and high inflation, which is worrying." This uncertainty puts policymakers in a dilemma: rate cuts may fuel inflation, while waiting might miss the rescue window.
The Critical Point of Rate Cuts: Signals and Timing
Based on historical experience and current dynamics, the Federal Reserve may need one of the following conditions to appear:
- Inflation Mitigation: Core PCE falls to 2.2%-2.3%, and the tariff effect is proven controllable.
- Economic Weakness: Unemployment rises to 5% or GDP growth significantly slows, showing tariff impact.
- Increased Financial Turbulence: MOVE Index breaks through 140, or high-yield bond spreads exceed 500 basis points, accompanied by stock market declines over 25%-30%.
Currently (April 7, 2025), CME "Fed Watch" shows a 54.6% probability of a 25 basis point rate cut in May, with market expectations slightly leading. However, the bond market has not fully priced in a recession, with 10-year US Treasury yields fluctuating between 4.1%-4.2%, and a liquidity crisis has not yet emerged. The Federal Reserve is more likely to first use loan tools rather than immediately cut rates.
Future Timing Predictions:
- Short-term (May): If MOVE Index breaks 140 or credit spreads approach 500 basis points, coupled with further stock market decline, the Federal Reserve may cut rates 25-50 basis points in advance.
- Medium-term (June-July): Tariff effects appear in data, with inflation falling and economic slowdown, rate cut probability increases, potentially reducing by 75-100 basis points cumulatively.
- Crisis Scenario (Q3): If global trade war escalates and market failure occurs, the Federal Reserve may emergency cut rates and restart QE.
The tariff crisis is like a stress test, challenging the Federal Reserve's patience and bottom line. As Hayes says, bond market volatility may be the "outpost" of rate cuts, while credit spread expansion could be the "trigger". Currently, the market swings between fear and anticipation, while the Federal Reserve awaits clearer signals. History proves that every crash is the starting point of reconstruction, and this time, the key to rate cuts may be hidden in the next leap of the MOVE Index or the critical breakthrough of credit spreads. Investors must hold their breath, for the storm is far from subsiding.
