Rate cut expectations for 2025 have spiked to the highest level this year

Crypto analyst Mark Deutscher revealed that rate cut expectations for 2025 have surged to the highest level this year. The spike came as markets experienced a pullback due to growth concerns.

Deutscher believes that the increase in rate cut expectations could offer some counterbalance to support risk assets from experiencing sharp declines. The analyst’s remarks suggest a possible stabilization in the trading environment for risk assets, as traders may anticipate monetary policy easing to mitigate economic slowdown risks.

Rate cut expectations this year spike to the highest level in 2025

📉Markets are pricing in two 25-basis-point rate cuts by the Fed this year, with the first projected for July and the second for October.#fed #interestrates #markets #economy pic.twitter.com/AqiXoQaosR

— zForexglobal (@zForexglobal) February 27, 2025

Financial analyst Miles Deutscher reported that expectations for rate cuts in 2025 had reached an unprecedented peak. He argued that the surge in anticipation stemmed from market pullbacks due to growth concerns. Deutscher also believes that market pullbacks could potentially mitigate the decline of risk assets like cryptocurrencies.

Neil Sethi, managing partner at Sethi Associates, argued that FOMC rate cut probabilities were experiencing the most cuts this year. Sethi referred to CME’s FedWatch tool, which showed that a cut by March remained off the table at 5%, but one by June was at 71% (up from 33% the Wednesday after CPI). 

The FedWatch tool also revealed that there were chances of two 2025 rate cuts at 77% (vs 31%). There are also expectations for no cuts down to 4% (vs 29%) with 59 basis points of cuts priced (vs 28).

Markets are pricing in two 25-basis-point rate cuts by the Fed this year. The Chicago Mercantile Exchange’s FedWatch tool showed a 97.5% probability that the Fed will cut rates to 425 to 450 bps on March 19 at the Fed meeting. The Kobeissi Letter (TKL) also noted that the markets will see one rate cut this year in October 2025. The commentary also highlighted that after the October cut, the market will not see another rate case until December 2026. TKL argued that the market “effectively sees higher rates for years to come amid the recent data shifts.”

“Rates were abnormally low for the better part of 15 years, and they’ve been abnormally high for the last two. They’re coming down, but where they’ll settle out is going to be at a level that’s higher than what we had seen before 2022.”

–Greg McBride, Chief Financial Analyst at Bankrate.

Danielle DiMartino Booth, CEO and Chief Strategist at QI Research, mentioned on January 1 that she expected five or more rate cuts in 2025. She argued that it was “more than what the market is pricing in and more than what Fed officials are expecting right now.”

Chief Economist at Havas, Thomas Thompson, noted that the U.S. GDP grew by 2.3% in Q4, slowing from 3.1% in Q3. Thompson argued that the Fed may delay rate cust and keep borrowing costs high as growth was expected to slow to 2.3% in 2025.

Fed’s Christopher Waller also said that 3 to 4 rate cuts would be possible in 2025 if CPI trends were lower. CPI inflation was expected to remain at 2.9% but surged by 0.5% in one month, the largest increase since August 2023. The rise marked the first +0.5% increase in inflation since August 2023. Core CPI inflation was also expected to fall to 3.1% but instead increased to 3.3%. The inflation numbers posted a large jump and hit 6+ month highs.

TKL believes rising inflation affected the markets

The Kobeissi Letter posted on February 7 that U.S. consumers’ 12-month inflation expectations were up to 4.3%, the highest since November 2023. It marked a 1.7 percentage point jump over the last 3 months, the largest surge since February 2020.

The global capital market commentary said the inflation data put the 10-year note yield back above 4.60%, which was +20 basis points above the lows seen early in the month. The commentary added that such a sharp move higher in the bond market emphasized just how hot the inflation data was.

According to TKL, the “ultimate wildcard is what tariffs will do to the inflation situation.” Data showed that one-year inflation expectations had skyrocketed since the trade war began. The commentary also added that the markets could see an average tariff rate of 20%, the highest in 30 years.

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