Decline panic escalates! Traders betting on the Fed cutting interest rates five more times this year.

As the US government's imposition of tariffs raises concerns about global economic recession, the market is rapidly adjusting interest rate expectations. Traders currently expect the Fed to cut interest rates five more times this year. Overnight interest rate swap markets show that investors are betting on a 125 basis point rate cut by the end of the year, equivalent to five standard 25-basis point rate cuts. Just last week, the market had only fully digested the expectation of three rate cuts. This drastic adjustment reflects the spreading panic in global markets. US President Trump shows no signs of backing down from the tough tariff policy announced last week, and he even told reporters on Sunday evening to "forget about the market for now." Investors are frantically selling risk assets and rushing to buy bonds, causing yields to plummet. The yield on the sensitive-to-monetary-policy US two-year Treasury note dropped 22 basis points to 3.43% on Monday, a cumulative decline of about 50 basis points since Trump announced the tariff policy last Wednesday. "It's all bad news now, market conditions are deteriorating," said Michael Brown, senior research strategist at Pepperstone. "The market is eagerly awaiting a reversal of policy by the White House or the Fed. But for now, it seems that neither is likely to change their stance, which means the economy and the market may suffer more pain." Goldman Sachs also pointed out in its latest research report that the risk of further monetary policy easing by the Fed significantly increases if the US economy enters a recession. In the current non-recession baseline scenario, Goldman Sachs expects the Fed to start three consecutive 25-basis point "precautionary rate cuts" in June (previously predicted in July), bringing the federal funds rate to a range of 3.5-3.75%. The report also added, "In a recession scenario, we expect the Fed to cut rates by around 200 basis points in the next year." Goldman Sachs' current probability-weighted interest rate forecast also shows that the Fed's cumulative rate cut this year may reach 130 basis points (higher than the previous 105 basis points), reflecting an increased probability of economic recession. This revised expectation is already in line with the latest market pricing (five rate cuts this year). Despite this, Fed Chairman Powell seems to think that now is not the time to intervene to save the market. "Many people, including us, are waiting and watching in the face of increasing uncertainty, which seems to be the right thing to do," he explained last Friday. This seems to suggest that the Fed will not rush to cut rates as it did in the past to deal with clear crises. The latest data shows that US job growth in March remains strong. However, Powell cautiously pointed out that these data were collected before Trump announced the tariff policy. "The best path for monetary policy is not yet clear," he said. "We need to watch the situation develop." Quick and strong action when the problem is clear is the Fed's operating principle, but in recent years, avoiding actions that may need to be reversed later is equally important. Releasing a rate cut signal rashly when high inflation might require maintaining high rates could potentially lead to new economic threats. Former Fed Vice Chairman and Princeton University economics professor Alan Blinder says, "Powell's primary task is to dispel the belief in the market that the Fed is about to rush into a major rate cut. This does not mean the Fed will never respond with rate cuts. If the situation develops into an economic recession, the Fed may cut rates."