The market is eagerly waiting, when will the Fed start to "print money"?

In April 2025, the Trump administration's tariff stick once again shocked the global market. U.S. stocks plummeted, crypto assets bled, Bitcoin fell more than 10% in two days, Ethereum once plunged 20%, and the 24-hour liquidation amount reached 1.6 billion U.S. dollars. Investors were panicked and turned their attention to the Federal Reserve, expecting it to cut interest rates to save the market. However, the silence of the Federal Reserve is disturbing: where is the critical point of interest rate cuts? Under the double pressure of inflation concerns and economic pressure, when will the Federal Reserve loosen its policy? This is not only a data game, but also a contest between market confidence and macroeconomic game.

Historical Mirror: The Trigger Code for Rate Cuts

The Federal Reserve's rate cut decision has never been a random move, but a well-thought-out choice under a crisis or economic turning point. Looking back at the key moments in recent years, we can extract the trigger logic of rate cuts from historical scripts to provide a reference for the current tariff crisis. The following is a detailed analysis of three iconic rate cuts, revealing the environment and motivations behind them.

2008 Financial Crisis

Background of emergency rescue for systemic collapse: In September 2008, the collapse of Lehman Brothers ignited the global financial tsunami, and the subprime mortgage crisis exposed the fragility of the US real estate bubble. The interbank credit market froze, the S&P 500 fell 38.5% for the whole year, and the Dow Jones Index plunged 18% in a single week in October. The unemployment rate surged from 5% at the beginning of the year to 7.3% at the end of the year, and climbed to a peak of 10% in the following year. The VIX panic index soared to more than 80, and the US dollar LIBOR-OIS spread soared from 10 basis points to 364 basis points, indicating that interbank trust was almost collapsed.

Interest rate cuts: The Fed took the lead in cutting interest rates by 50 basis points in September 2007, from 5.25% to 4.75%. It then accelerated its actions in 2008, cutting interest rates twice in October by a total of 100 basis points, and in December it further reduced interest rates to an ultra-low range of 0%-0.25%. At the same time, it launched quantitative easing (QE) to inject trillions of dollars of liquidity into the market.

Trigger code: financial systemic risk (bank failure, credit freeze) and economic recession (continuous negative GDP growth). Inflationary pressures were quickly covered up at the beginning of the crisis, and core PCE fell from 2.3% to 1.9%, making room for interest rate cuts. The Fed prioritizes financial stability and employment, and interest rates "returning to zero" have become inevitable.

2019 Trade War

Background of the buffer strategy for preventive interest rate cuts: In 2018-2019, the Sino-US trade war intensified, the United States imposed tariffs on Chinese goods, and the global supply chain was under pressure. The US GDP growth slowed from 2.9% in 2018 to 2.1% in mid-2019, and the manufacturing PMI fell below 50 to 47.8, indicating a contraction in economic activity. The S&P 500 fell 19% at the end of 2018, and the 10-year and 2-year US Treasury yield curves inverted, warning of a recession. Corporate investment confidence declined, but the unemployment rate remained stable at a low of 3.5%.

Rate cuts: In July 2019, the Federal Reserve cut interest rates by 25 basis points from 2.25%-2.5% to 2%-2.25%, and then cut them by 25 basis points in September and October, eventually falling to 1.5%-1.75%, a total decline of 75 basis points for the whole year.

Trigger code: signs of economic slowdown (shrinking manufacturing, declining investment) and global uncertainty (trade war), rather than a full-scale recession. Inflation is mild, with core PCE remaining at around 1.6%, below the 2% target, providing room for preventive rate cuts. The Fed intends to cushion external shocks and avoid a hard landing of the economy.

2020 Epidemic Shock

Background of decisive intervention under liquidity crisis: In March 2020, the COVID-19 pandemic spread globally, and U.S. stocks were halted three times on March 9, 12, and 16. The S&P 500 suffered its largest daily drop of 9.5%, and the VIX panic index soared to 75.47. The U.S. dollar liquidity crisis emerged, and investors sold assets for cash. DXY rose sharply from 94.5 to 103, a three-year high. Crude oil prices collapsed, WTI fell below $20, and the global economy faced the risk of shutdown.

Rate cuts: On March 3, 2020, the Fed urgently cut interest rates by 50 basis points to 1%-1.25%; on March 15, it again urgently cut interest rates by 100 basis points to 0%-0.25%, and restarted large-scale QE, with the scale of bond purchases rapidly expanding to hundreds of billions of dollars.

Trigger code: Financial market liquidity depletion (US bond selling, credit market freeze) and economic shutdown risks (lockdown measures lead to a sharp drop in demand). Inflation was ignored in the early stages of the crisis, and core PCE fell from 1.8% to 1.3%. The Fed prioritized stabilizing the market and preventing systemic collapse.

These cases reveal that the Fed's rate cuts usually revolve around three core conditions:

Low or controllable inflation: Inflation was suppressed by the crisis in 2008 and 2020, and inflation was below target in 2019, paving the way for rate cuts.

The economy is under significant pressure: Whether it is a recession (2008), a slowdown (2019), or a shutdown (2020), economic weakness is the key driver.

Financial market collapse: Systemic risks such as credit freeze (2008) and liquidity crisis (2020) forced the Federal Reserve to act decisively.

Current dilemma: the tug-of-war between inflation and turmoil

On April 7, 2025, global markets fell into panic due to Trump's tariff policy. U.S. technology stocks plummeted, the S&P 500 fell more than 4.7% during the session, and the crypto market fell simultaneously. However, Fed Chairman Powell expressed calmness last Friday: "The economy is still in good shape, and we will not rush to respond to market turmoil." The core PCE inflation rate remained at 2.8%, above the 2% target, and tariffs may further push up prices, which casts a shadow on the prospect of rate cuts.

At the same time, market signals are exacerbating tensions. According to Tradingview data, the bond volatility index (MOVE Index) broke through 137 points on April 8, creating a "seven consecutive positives" and approaching the "critical line" of 140 points predicted by Arthur Hayes. Hayes once warned: "If the MOVE Index rises, leveraged Treasury and corporate bond traders will be forced to sell due to increased margin requirements. This is a market that the Federal Reserve is determined to defend. Breaking through 140 is a signal of post-crash easing." The current index is only one step away from this threshold, suggesting that pressure in the bond market is accumulating.

Lindsay Matcham, an analyst at Goldman Sachs, pointed out that the widening of credit spreads may be another trigger for the Fed to take action. If the high-yield bond spread rises to 500 basis points, corporate financing difficulties and a weak job market may emerge one after another, forcing Powell to turn to easing as in 2018. At present, the high-yield bond spread has reached 454 basis points, not far from the warning line, and the market has smelled the breath of risk.

External voices: consensus in disagreement

The market has significant differences in its judgment on the timing of the Fed's interest rate cut. BlackRock CEO Larry Fink poured cold water: "The possibility of the Fed cutting interest rates four or five times this year is zero, and interest rates may rise instead of falling." He believes that Powell's tough attitude stems from the stable non-farm data and inflation concerns, and it is difficult to use up policy "bullets" in the short term. On the other hand, Goldman Sachs predicts that if there is no recession, the Fed may cut interest rates three times in a row to 3.5%-3.75% from June; if a recession is triggered, the reduction may reach 200 basis points.

Anxiety is also revealed within the Fed. On April 8, Chicago Fed President Goolsbee said: "The hard data of the US economy has performed unprecedentedly well, but tariffs and countermeasures may reproduce supply chain disruptions and high inflation, which is worrying." This uncertainty puts policymakers in a dilemma: cutting interest rates may fuel inflation, and waiting and watching may miss the window to rescue the market.

The critical point of interest rate cut: signal and timing

Combining historical experience and current dynamics, the Fed's interest rate cut may require one of the following conditions to appear:

Inflation easing: core PCE falls back to 2.2%-2.3%, and the tariff effect is proven to be controllable.

Economic weakness: unemployment rate rises to 5% or GDP growth slows significantly, and the tariff impact is apparent.

Financial turmoil intensifies: MOVE Index breaks through 140, or high-yield bond spreads exceed 500 basis points, accompanied by a stock market decline of more than 25%-30%.

Currently (April 7, 2025), CME's "Fed Watch" shows that the probability of a 25 basis point interest rate cut in May is 54.6%, and market expectations are slightly ahead. However, the bond market has not fully priced in a recession, with the 10-year US Treasury yield fluctuating between 4.1%-4.2%, and a liquidity crisis has not yet emerged. The Fed is more likely to use lending tools first rather than immediately cut interest rates.

Future point forecast:

Short term (May): If the MOVE Index breaks through 140 or the credit spread approaches 500 basis points, coupled with a further decline in the stock market, the Fed may cut interest rates by 25-50 basis points in advance.

Medium term (June-July): The tariff effect is reflected in the data. If inflation falls and the economy slows down, the probability of interest rate cuts will increase, or a cumulative reduction of 75-100 basis points.

Crisis scenario (Q3): If the global trade war escalates and the market fails, the Fed may urgently cut interest rates and restart QE.

The tariff crisis is like a stress test, testing the patience and bottom line of the Fed. As Hayes said, bond market volatility may be the "outpost" of interest rate cuts, while the widening of credit spreads may be the "trigger". At present, the market is swinging between fear and expectation, but the Fed is waiting for clearer signals. History has proven that every plunge is the starting point for reshaping, and this time, the key to interest rate cuts may be hidden in the next jump of the MOVE Index or the critical breakthrough of credit spreads. Investors need to hold their breath, because the storm is far from over.