As Markets Wake Up to Black Monday, Investors Believe the FED Will Step In! Will There Be an Interest Rate Cut in May? Here Are the Details

Global markets are in turmoil, and investors are betting that the Federal Reserve will be forced to intervene with aggressive interest rate cuts as financial stress concentrates among asset classes.

Investors Believe the FED Will Have to Lower Interest Rates in 2025 as Markets Decline

Bitcoin (BTC) fell to around $74,500 on Monday with a 10% drop, while U.S. stock markets are heading towards their worst three-day decline in recent years. S&P 500 futures dropped about 5% in a single session, and the total loss since last week has approached 15%.

According to the futures markets, as risky assets come under pressure, investors are increasingly pricing in a dramatic shift by the FED that could lead to five interest rate cuts by 2025.

Credit Markets Indicate That the FED Has No Other Option

The CME FedWatch Tool indicates that investors see a 61% probability of a 25 basis point rate cut at the Fed's next meeting on May 7, which would lower the target federal funds rate to 4.25%-4.50%. By the end of the year, markets expect rates to fall to the 3.00%-3.25% range.

Historically, the Fed has responded to market crashes with aggressive policy easing measures such as interest rate cuts, bond purchases, and liquidity injections. Investors seem to be positioning themselves for a similar playbook this time as financial conditions tighten rapidly.

The growing confidence in the market indicates that the Federal Reserve will not be able to withstand pressure for long. Falling asset prices, rising credit stress, and the need for the U.S. government to refinance point to the need for a change in policy sooner or later.

We will see whether the FED will meet these expectations at the May meeting or if it will have to wait to see if the markets will deteriorate further.

But one thing is clear: the financial markets are loudly and clearly signaling that the FED's tightening cycle may have already come to an end and that the next move could be a swift race towards lower rates.