Markets Tank, Rate Cut Bets Surge as Credit Stress Pressures the Fed
As financial markets unravel, traders are increasingly betting that the Federal Reserve will be forced into an aggressive policy pivot — possibly as early as next month.
Bitcoin (BTC) fell 8% to $75,800 on Monday, extending its recent slide alongside a broader market sell-off. U.S. equities were also under heavy pressure, with S&P 500 futures down roughly 5% on the day, pushing the benchmark index toward its worst three-day stretch in years and losses nearing 15%.
The deepening sell-off is fueling expectations that the Fed will step in with rate cuts to calm nerves — a familiar playbook from past crises. And now, traders in the credit markets are wagering the central bank won’t sit this one out.
Data from the CME FedWatch Tool shows that futures are pricing in up to five rate cuts for 2025. There’s now a 61% chance of a 25 basis point cut at the Fed’s next meeting on May 7, which would bring the target rate down to 4.25%–4.50%. By December, markets are projecting the federal funds rate could fall as low as 3.00%–3.25%.
This growing chorus of rate-cut expectations comes as investors flee risk assets and pile into safe havens, driving bond yields sharply lower. The 10-year Treasury yield — a key barometer for the economy — has tumbled to 3.92%, delivering precisely the kind of outcome the Trump administration may be quietly hoping for.
Lower yields make it easier for the U.S. government to refinance its towering debt burden, particularly in light of a controversial shift in strategy under former Treasury Secretary Janet Yellen. Since 2023, the government has relied heavily on short-term Treasury bills to fund deficits, exposing it to higher refinancing risk. Nearly two-thirds of all new debt over the past two years has been short-term, with yields north of 5%.
While that approach helped ease immediate liquidity concerns, it created a looming rollover crisis — one that could now force the Fed to act more decisively to support the market and, indirectly, Washington’s refinancing needs.
