Rising Fed Rate-Cut Expectations: A Dual Contest Between Markets and the Economy
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Entering Q2 2025, global capital markets are gripped by tension. The yield on the US 10-year Treasury has surged above 4.5%, and the 30-year yield has even exceeded 5%. The US Dollar Index has been falling continuously, with both US stocks and bonds declining, rendering traditional asset allocation strategies completely ineffective. This "Cross-Asset Spiral" scenario is extremely rare in history, driven by a simultaneous rise in investor anxiety and anticipation over the direction of Federal Reserve policy. Goldman Sachs, Morgan Stanley, and economist Peter Schiff have all warned that if the Fed does not change course promptly, financial markets may replay the 1987 "Black Monday" scenario. This time, it is not merely about the economic cycle, but rather an ultimatum from the entire financial system to the Federal Reserve.
1.Bond Market Turbulence: From a Safe Haven to a Source of Risk
U.S. Treasuries have long been regarded as a safe haven for global capital, but the current sharp sell-off has completely shaken that belief. Credit Default Swaps (CDS) on high-yield bonds have surged dramatically, reflecting systemic stress in the credit market. Boaz Weinstein, the founder of Saba Capital, warned, "Corporate bonds are experiencing concentrated sell-offs, with small and medium-sized enterprises taking the brunt." If financing conditions continue to tighten, a wave of defaults could recur. This is not merely an issue of interest rates; it signifies a breakdown in the risk pricing mechanisms across the entire financial system. In an environment of high interest rates and high debt, market tolerance for the Federal Reserve is rapidly diminishing.
2.Dollar Under Pressure, Funds Seeking a "New Safe-Haven"
In tandem with the bond market turbulence, the U.S. dollar is facing significant pressure. As expectations of rate cuts rise, the dollar index has dropped to new lows, prompting global capital to shift quietly into non-traditional safe-haven assets such as gold, emerging market assets, cryptocurrencies, and DeFi protocols. This rebalancing process indicates that investors' confidence in the Fed maintaining high interest rates is rapidly fading. Meanwhile, liquidity in the crypto market is growing, and investors are withdrawing funds from traditional asset allocations in search of new stores of value. For example, the growth of Bitcoin, Ethereum, and emerging blockchain projects highlights the increasing investor interest in crypto assets.
3.The Return of "Reciprocal Tariffs" and Layered Policy Risks
Just as the market shifted its focus to monetary policy, an abrupt change in trade policy has once again stirred up turbulence. The U.S. government recently reinstated the 'reciprocal tariff' policy, imposing steep tariffs on major importers in an effort to protect domestic industries. However, this approach may backfire:
- Manufacturing and consumer goods prices may rise, exacerbating a secondary inflationary effect on the CPI,
- Business profit margins could be squeezed, reducing their willingness to invest,
- International central banks might reduce their holdings of U.S. Treasuries to stabilize their own currencies.
Policy uncertainty is rapidly mounting, and the dual objectives of controlling inflation while sustaining growth have become irreconcilable. The Federal Reserve is now forced to make difficult decisions amidst this intense policy battle.
4.Urgent Calls for Rate Cuts Intensify as Financial System Alerts Resound
Renowned economist Peter Schiff warned that if rate cuts are not implemented quickly and QE is resumed, US stocks may repeat the 1987 "Black Monday" scenario. Mainstream investment banks such as Goldman Sachs and Morgan Stanley have concurrently moved their expectations for the first rate cut forward to mid-2025.
According to Goldman Sachs' latest forecast, as part of a preemptive easing cycle, the Federal Reserve may initiate its first rate cut in June, earlier than the previously anticipated July. Under the baseline scenario where the U.S. economy avoids a recession, it is expected that the Fed will lower the benchmark interest rate three times, each by 25 basis points, and maintain the federal funds rate at between 3.5% and 3.75% by the end of the year. However, should the economy indeed fall into recession, Goldman Sachs believes the Fed may adopt more aggressive measures, potentially widening the annual rate cut to 200 basis points. Based on current economic data and risk assessments, the firm's weighted forecast suggests a total rate cut of 130 basis points in 2025, higher than the previous prediction of 105 basis points. As of April 4, market expectations are largely in line with this forecast.
The market's call for a combination of "emergency rate cuts and renewed quantitative easing" reflects heightened vigilance over the escalation of systemic financial risk. In the eyes of investors, monetary easing may already be seen as the only realistic option to avoid a credit crisis and an asset price collapse. However, the policy dilemma facing the Fed is becoming increasingly challenging:
Persistent Inflationary Pressure: The core CPI data in March 2025 still remains far above the 2% target level, with sticky inflation posing significant constraints on monetary easing.
Limited Policy Window: Missing the optimal timing could drastically diminish the effectiveness of rate cuts, and the cost of policy errors could result in systemic spillover risks.
Uncontrollable Policy Spillovers: Whether choosing to maintain high rates or initiate easing, significant long-term impacts on the dollar’s exchange rate, capital flows, and emerging market stability are unavoidable.
In short, the Fed finds itself at the most complex and perilous policy crossroads since the post-pandemic period. Every move will trigger a chain reaction in global markets. With the dual mandate of curbing inflation while stabilizing financial conditions and sustaining growth, policymakers face unprecedented challenges due to the intense interplay of market forces.
5.Uncertain Times, Only the Clear-Sighted Survive
Although rate-cut expectations have become the market's main theme, there is no guarantee of a "soft landing." From bonds to exchange rates, from commodities to tech stocks, global assets are reacting to Fed policy moves at an unprecedented pace. The key question remains whether the Fed can still "dictate the rhythm." For investors, the current phase is critical for risk management and represents an important window for asset revaluation. Nontraditional assets with high liquidity, robust security, and inflation-resistant qualities are beginning to emerge as safe havens for mainstream capital.
Against this backdrop, MEXC, as a global leading digital asset trading platform, is becoming the preferred choice for an increasing number of institutional and individual investors:
- Rapid Listing Mechanism: Helping users capture new market trends in real time,
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The global market in 2025 is experiencing an unprecedented macro shift. With monetary policy, trade policy, and geopolitical risks all intertwining, every move by the Fed could become the linchpin for market trends. Investors must remain clear-headed, understand the underlying logic, discern signals accurately, and allocate assets cautiously. In an era where "gray rhinos" and "black swans" coexist, only keen judgment and rational choices can help navigate cycles and withstand the storm.
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