Futures Traders Slash Rate Cut Expectations On Trump’s Tariff Pause, But Here’s What Retail Investors Think

The Federal Reserve released the minutes of the Federal Open Market Committee (FOMC) meeting held in March on Wednesday that showed most participants expect the risks to inflation tilting to the upside.

If there is one thing that the Fed is known to assert in its public statements repeatedly, it is that it bases its decisions on incoming data.

If incoming data continues to show that inflation remains sticky, especially in the wake of the ongoing tariff wars that could lead to price pressures, then the central bank has tough decision-making ahead of itself.

This is because the FOMC participants have not only acknowledged that inflation could remain higher, but they are also aware that uncertainty around the economic outlook has increased.

Under these circumstances, an ongoing poll on Stocktwits showed that 35% of the surveyed respondents believe the Fed’s first rate cut will occur in May.

A quarter of the 1,100 respondents believe that the central bank will announce a rate reduction in July. Interestingly, 21% of the participants have expressed hopes there would be an emergency rate cut, which was last seen in 2020.

Only 19% believe the June FOMC meet will yield a rate revision on the downside.

Interestingly, futures traders have factored in a zero rate cut for May. According to the CME FedWatch Tool, traders are pricing in the first 25 basis point rate cut in June, followed by further quarter-point rate reductions in July and September.

This shows that the market has reduced its rate cut expectations to three this year from four before President Donald Trump announced a 90-day pause on tariffs.

Regardless of the monetary policy expectations, markets worldwide shot up on Wednesday, cheering Trump’s tariff pause.

The SPDR S&P 500 ETF Trust (SPY), which tracks the S&P 500, closed over 10% higher, while the Invesco QQQ Trust, Series 1 (QQQ) shot up 12%. Both ETFs have taken a breather in Thursday’s pre-market session.

Investors will now watch out for the upcoming inflation data for further hints about the monetary policy trajectory.

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