TLDR
- The stock market lost over $5 trillion in value following Trump’s aggressive tariff announcements
- JPMorgan’s Bob Michele compared recent market chaos to historical crises (1987, 2008, 2020)
- Some analysts believe the Fed may need an emergency rate cut before its May meeting
- JPMorgan economists revised GDP forecast from 1.3% growth to 0.3% contraction due to tariffs
- Fed Chair Powell has maintained the Fed won’t rush policy changes despite market turmoil
The U.S. financial markets are in turmoil following President Donald Trump’s announcement of an aggressive tariff policy, wiping out over $5 trillion in market value in just two days. The severe market reaction has prompted discussions about whether the Federal Reserve might implement an emergency rate cut before its scheduled May meeting.
Bob Michele, Global Head of Fixed Income at JPMorgan Asset Management, told Bloomberg Surveillance that the market chaos was exceptionally severe. He compared it to historical crises like the 1987 stock market crash, the 2008 financial crisis, and the 2020 COVID-19 market downturn.
Michele expressed doubt that the Fed could wait until its May 7 meeting to begin lowering rates. “I don’t know if they can even make it to the May meeting before they start bringing rates down,” he said.
The recent market turmoil began after Trump kicked off his second term with threats of tariffs on imports from key U.S. partners including Canada, Mexico, and China. These actions have sparked recession fears among investors and economists.
Market Reaction and Economic Outlook
JPMorgan economists have sharply downgraded their economic forecast for the year. They now predict the GDP will shrink by 0.3% instead of growing by 1.3% as previously expected.
The CME FedWatch Tool shows only a 34% chance that the Fed will lower rates at its May meeting. However, the odds of a June rate cut are much higher at around 98%, according to the latest data.
Wall Street’s mood has become so pessimistic that CME’s Fedwatch tool briefly priced in 125 basis points of rate cuts this year, before adjusting to 100 points – equivalent to four quarter-point cuts. This represents a major shift from earlier expectations of just two cuts in 2025.
According to Bloomberg data, investors see nearly 40% odds the Fed will cut rates by 25 basis points before the next scheduled meeting on May 7.
Michele warned that vulnerable companies already struggling with debt now face a combination of higher borrowing costs, lower sales, and higher expenses. He believes these underlying issues could worsen dramatically if the Fed doesn’t take action soon.
Fed’s Position and Trump’s Response
Fed Chair Jerome Powell has maintained a cautious stance toward rate adjustments. In a statement last Friday, Powell noted that Trump’s new tariffs would likely cause higher inflation and slower economic growth in the U.S.
“It feels like we don’t need to be in a hurry. It feels like we have time,” Powell said. “Inflation is going to be moving up, and growth is going to be slowing, but to me it’s not clear at this time what the appropriate path for monetary policy is going to be.”
Powell’s comments suggest the Fed is weighing the competing concerns of inflation, which would be fueled by tariffs, against supporting the job market.
Despite the market selloff, Trump has shown no signs of backing down from his trade war policies. On Monday, he doubled down on his message that Americans must endure some pain to achieve his goal of rebalancing trade relations.
“Don’t be Weak! Don’t be Stupid! Don’t be a PANICAN (A new party based on Weak and Stupid people!). Be Strong, Courageous, and Patient, and GREATNESS will be the result!” Trump wrote on Truth Social.
Trump has consistently urged the Fed to cut interest rates. In January, he demanded immediate rate reductions, claiming better monetary policy was needed to support the economy.
Some analysts caution against an emergency Fed cut. Greg McBride, Bankrate’s chief financial analyst, warned that such a move “would do little and could fuel further panic. Any boost to sentiment could also be fleeting amid such uncertainty.”
McBride acknowledged the stock market meltdown is “unique, and is particularly unsettling,” but cautioned investors should resist the temptation for “knee-jerk” selling.
The brewing conflict between Trump’s tariff policies and the Fed’s cautious approach leaves markets in a state of uncertainty. Traders are now pricing in that the Fed will likely adjust rates at the November and December 2025 meetings, in addition to earlier cuts.
As market participants anxiously watch for signs of the Fed’s next move, Michele’s warning remains stark: “This is a serious moment. I do not think the Fed can just sit on the side.”
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