Possible emergency interest rate reduction from the Fed before the May meeting, as stated by a JPMorgan executive.
Federal Reserve May Consider Emergency Rate Cut Ahead of May Meeting
The Global Head of Fixed Income at JPMorgan Asset Management, Bob Michele, has implied that the Federal Reserve might be compelled to make an emergency interest rate cut before its scheduled meeting in May. This suggestion comes as market volatility escalates in the wake of President Trump's recently announced aggressive tariff policy.
Over the past three trading days, the US stock market has experienced a significant loss, with shares bleeding over $5 trillion. The sharp decline in share prices was triggered by President Trump's announcement of tariffs targeting imports from key US trading partners, including Canada, Mexico, and China.
In a recent interview on Bloomberg Surveillance, Michele likeneed the current market turmoil to three historical crises: the 1987 stock market crash, the 2008 financial crisis, and the 2020 COVID-19 market downturn. Historically, the Federal Reserve has acted swiftly with rate cuts to stabilize markets during such periods of extreme volatility, and Michele suggested that the ongoing market instability could necessitate a similar response.
However, this urgency stands in contrast to the Fed's current stance. Fed Chair Jerome Powell has consistently stated that the central bank is not hastily adjusting its monetary policy, despite President Trump's calls for lower interest rates to support the economy. During a speech last Friday, Powell mentioned that the new tariffs could result in higher inflation and slower economic growth in the US.
Michele criticized the Fed's cautious approach, arguing that the central bank should be more proactive in addressing the escalating market stress. He expressed doubt that the Fed could afford to wait until its upcoming meeting scheduled for May 7 to initiate lowering rates, as the recent market drops signaled deeper economic problems.
While the likelihood of an emergency rate cut before the next scheduled meeting is uncertain, the CME FedWatch Tool indicates that there is only a 34% chance of a rate cut in May. Most market participants view a June rate cut as more likely, with odds around 98%, according to the latest data. In addition, traders are also pricing in potential rate adjustments at the November and December 2025 meetings.
As the economy navigates uncertain terrains due to ongoing trade tensions, the Federal Reserve's monetary policy decisions remain crucial. While President Trump has consistently advocated for rate cuts to support the economy, the central bank may choose to maintain a cautious approach, waiting for clear signs of economic downturn before taking action.
- Given the market volatility caused by President Trump's tariff policy, the Federal Reserve might need to adopt an emergency interest rate cut, as suggested by Bob Michele, global head of Fixed Income at JPMorgan Asset Management.
- Historically, the Federal Reserve has responded to periods of extreme market volatility, such as the 1987 stock market crash, the 2008 financial crisis, and the 2020 COVID-19 market downturn, by cutting interest rates to stabilize the markets.
- Despite the current market instability and President Trump's calls for lower interest rates, Fed Chair Jerome Powell has maintained a cautious approach to the central bank's monetary policy, expressing concerns about the potential for higher inflation and slower economic growth due to the new tariffs.
