More interest rate cuts in 2025

The financial markets have been experiencing significant volatility since the tariff announcement on April 2, with investor sentiment fluctuating as negotiations and retaliatory measures unfold. This turbulence has prompted many economists and strategists to raise their predictions of a U.S. recession, with some estimating a 60% chance. Amidst this uncertainty, attention has shifted to the Federal Reserve's potential response, particularly regarding interest rate cuts.

Traders are increasingly betting on multiple interest rate cuts by the Federal Reserve this year, anticipating up to five reductions. This expectation is driven by the belief that the Fed will act to counteract the economic slowdown and inflationary pressures resulting from the tariffs. However, Federal Reserve Chair Jerome Powell has signaled a more cautious approach, emphasizing that the Fed is not in a hurry to adjust rates as it seeks more clarity on the economic impact of the tariffs.

Regardless of the timing and number of cuts, the path for interest rate policy is fairly clear: lower. In this environment, reassessing portfolios to include a mix of asset classes is essential. Bonds, which have historically supported investors during equity market downturns, can help lock in yields should cash yields decline. With potential market volatility stemming from trade policy uncertainty, a diversified strategy is crucial for managing risks and seizing opportunities.

All market and economic data as of 04/08/25 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

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