The market is eagerly awaiting when the Federal Reserve (FED) will take action to "print money"?

In April 2025, the tariff stick of the Trump administration again shocked global markets. US stocks experienced a big dump, and crypto assets were in a bloodbath, with Bitcoin falling over 10% in two days, and Ether plummeting by 20% at one point. The liquidation amount in 24 hours reached as high as 1.6 billion USD. Investors were anxious and turned their attention to The Federal Reserve, hoping for rate cuts to rescue the market. However, the silence of The Federal Reserve was unsettling: where exactly is the critical point for rate cuts? Under the dual pressure of inflation concerns and economic strain, when will The Federal Reserve loosen its policies? This is not just a game of data, but also a contest of market confidence and macroeconomic strategies.

Historical Reflection: The Trigger Code for Interest Rate Cuts

The Federal Reserve's interest rate cut decisions have never been arbitrary, but rather well-considered choices made during crises or economic turning points. Looking back at key moments in recent years, we can extract the triggering logic for rate cuts from historical scripts to provide a reference for the current tariff crisis. Below is a detailed analysis of three landmark interest rate cuts, revealing the underlying environment and motivations.

2008 Financial Crisis

• Background of Emergency Rescue for Systemic Collapse: In September 2008, the collapse of Lehman Brothers ignited a global financial tsunami, exposing the fragility of the U.S. real estate bubble during the subprime mortgage crisis. The interbank credit market froze, with the S&P 500 experiencing an annual decline of 38.5%, and the Dow Jones Industrial Average plummeting 18% in a single week in October. The unemployment rate surged from 5% at the beginning of the year to 7.3% by the end, eventually peaking at 10% in the following year. The VIX panic index soared above 80, and the dollar LIBOR-OIS spread surged from 10 basis points to 364 basis points, indicating a near collapse of trust among banks.
• Interest Rate Cut: The Federal Reserve (FED) was the first to cut interest rates by 50 basis points in September 2007, lowering it from 5.25% to 4.75%. Subsequently, in 2008, it accelerated its actions, cutting rates twice in October by a total of 100 basis points and then further down to the ultra-low range of 0%-0.25% in December, while also introducing quantitative easing (QE) to inject trillions of dollars in liquidity into the market.
• Trigger Password: Systemic financial risks (bank failures, credit freeze) and economic recession (consecutive negative GDP growth). Inflation pressures were quickly masked at the beginning of the crisis, with core PCE falling from 2.3% to 1.9%, creating space for interest rate cuts. The Federal Reserve prioritizes financial stability and employment, making "zero interest rates" inevitable.

2019 Trade War

• Background of the Buffer Strategy for Preventive Rate Cuts: In 2018-2019, the US-China trade war intensified, with the US imposing tariffs on Chinese goods, putting pressure on the global supply chain. The US GDP growth rate slowed from 2.9% in 2018 to 2.1% in mid-2019, with the manufacturing PMI falling below 50 to 47.8, indicating a contraction in economic activity. The S&P 500 experienced a decline of 19% at the end of 2018, and the yield curve between 10-year and 2-year US Treasury bonds inverted, signaling a recession warning. Corporate investment confidence declined, but the unemployment rate remained stable at a low level of 3.5%.
• Interest Rate Cut Actions: In July 2019, The Federal Reserve (FED) cut interest rates by 25 basis points, lowering them from 2.25%-2.5% to 2%-2.25%. In September and October, it cut by another 25 basis points each time, ultimately reaching 1.5%-1.75%, with a total annual reduction of 75 basis points.
• Trigger Password: Signs of economic slowdown (manufacturing contraction, declining investment) and global uncertainty (trade wars), rather than a full-blown recession. Inflation is moderate, with core PCE hovering around 1.6%, below the 2% target, providing room for preventive rate cuts. The Federal Reserve aims to buffer external shocks and avoid a hard landing for the economy.

Impact of the Pandemic in 2020

• Background of Decisive Intervention During Liquidity Crisis: In March 2020, as the COVID-19 pandemic spread globally, the US stock market experienced three circuit breakers on March 9, 12, and 16, with the S&P 500 seeing a single-day maximum drop of 9.5%, and the VIX panic index soaring to 75.47. The dollar liquidity crisis became apparent as investors sold off assets for cash, with the DXY surging from 94.5 to 103, reaching a three-year high. Oil prices plummeted, with WTI falling below 20 dollars, putting the global economy at risk of a standstill.
• Interest Rate Cuts: On March 3, 2020, the Federal Reserve (FED) made an emergency rate cut of 50 basis points to 1%-1.25%; on March 15, it again made an emergency rate cut of 100 basis points to 0%-0.25%, and restarted large-scale QE, rapidly expanding the scale of bond purchases to hundreds of billions of dollars.
• Trigger Password: The liquidity crisis in financial markets (sell-off of U.S. Treasuries, frozen credit markets) and the risk of economic standstill (lockdown measures leading to a sharp drop in demand). Inflation was ignored in the early stages of the crisis, with core PCE falling from 1.8% to 1.3%. The Federal Reserve (FED) prioritized stabilizing the market to prevent systemic collapse.

These cases reveal that The Federal Reserve (FED) usually lowers interest rates based on three core conditions:

1. Low or manageable inflation: Inflation in 2008 and 2020 was depressed by the crisis, and inflation was below target in 2019, paving the way for interest rate cuts.
2. The economy is significantly under pressure: Whether it is recession (2008), slowdown (2019), or standstill (2020), economic weakness is a key driver.
3. Financial Market Collapse: Systemic risks such as credit freeze (2008) and liquidity crisis (2020) forced The Federal Reserve (FED) to take decisive action.

Current Predicament: The Tug of War Between Inflation and Turbulence

On April 7, 2025, the global market fell into panic due to Trump's tariff policy. U.S. tech stocks plummeted, with the S&P 500 at one point falling over 4.7%, while the crypto market also declined simultaneously. However, Federal Reserve Chairman Powell stated calmly last Friday, "The economy is still in good shape, and we won't rush to react to market turmoil." The core PCE inflation rate remains at 2.8%, above the 2% target, and the tariffs may push prices higher, casting a shadow over the prospects for interest rate cuts.

At the same time, market signals are intensifying nervousness. According to Tradingview data, the bond volatility index (MOVE Index) broke through 137 points on April 8, marking a "seven consecutive days of gains," approaching the "critical line" of 140 points predicted by Arthur Hayes. Hayes has warned: "If the MOVE Index rises, leveraged treasury and corporate bond traders will be forced to liquidate due to increased margin requirements, which is a market that The Federal Reserve (FED) will defend at all costs. Breaking through 140 would signal a release of liquidity after a crash." The current index is just one step away from this threshold, suggesting that pressure in the bond market is building.

Goldman Sachs analyst Lindsay Matcham pointed out that the widening credit spread could be another trigger for the Federal Reserve to take action. If the high-yield bond spread rises to 500 basis points, difficulties in corporate financing and a weak job market may emerge consecutively, forcing Powell to shift to easing measures as he did in 2018. Currently, the high-yield bond spread has reached 454 basis points, not far from the warning line, and the market is sensing the smell of risk.

External voices: Consensus amid divergence

The market shows significant divergence in its judgment on the timing of the Federal Reserve's interest rate cuts. BlackRock CEO Larry Fink poured cold water on this, saying, "The possibility of the Federal Reserve cutting rates four to five times this year is zero, and interest rates may even rise instead of falling." He believes that Powell's tough stance stems from stable non-farm data and inflation concerns, making it difficult to exhaust policy "bullets" in the short term. In contrast, Goldman Sachs predicts that if there is no recession, the Federal Reserve may cut rates three times in a row starting in June to 3.5%-3.75%; if a recession triggers, the cut could reach 200 basis points.

The internal concerns of The Federal Reserve (FED) have also been revealed. On April 8, Chicago Federal Reserve President Goolsbee stated, "The hard data of the U.S. economy is performing exceptionally well, but tariffs and countermeasures could lead to a re-emergence of supply chain disruptions and high inflation, which is worrisome." This uncertainty has put policymakers in a dilemma: lowering interest rates could fuel inflation, while waiting might risk missing the window for economic rescue.

The critical point of interest rate cuts: signals and timing

Based on historical experience and current dynamics, the Federal Reserve (FED) may need one of the following conditions to manifest for a rate cut:

• Inflation easing: Core PCE has fallen to 2.2%-2.3%, and the tariff effect has proven to be controllable.
• Economic weakness: Unemployment rate rises to 5% or GDP growth slows significantly, tariff impacts become apparent.
• Financial turmoil intensifies: MOVE Index breaks 140, or high-yield bond spreads exceed 500 basis points, accompanied by a stock market decline of over 25%-30%.

As of now (April 7, 2025), CME's "The Federal Reserve (FED) Watch" shows a 54.6% probability of a 25 basis point rate cut in May, with the market expectations slightly leading. However, the bond market has not fully priced in a recession, with the 10-year U.S. Treasury yield fluctuating between 4.1% and 4.2%, and a liquidity crisis has not yet emerged. The Federal Reserve (FED) is more likely to first utilize loan tools rather than immediately cut interest rates.

Future Point Forecast:

• Short-term (May): If the MOVE Index breaks above 140 or the credit spread approaches 500 basis points, combined with further declines in the stock market, the Federal Reserve (FED) may cut interest rates by 25-50 basis points ahead of schedule.
• Mid-term (June-July): The effects of tariffs become evident in the data, if inflation falls and the economy slows down, the probability of interest rate cuts increases, potentially resulting in a cumulative reduction of 75-100 basis points.
• Crisis Scenario (Q3): If the global trade war escalates and the market fails, the Federal Reserve may urgently cut interest rates and restart QE.

The tariff crisis is like a stress test, testing the patience and bottom line of The Federal Reserve (FED). As Hayes said, the fluctuations in the bond market may be a "forewarning" of interest rate cuts, while the widening of credit spreads could be the "ignition point." Currently, the market swings between fear and anticipation, while The Federal Reserve (FED) waits for clearer signals. History has proven that every big dump is a starting point for reshaping, and this time, the key to interest rate cuts may lie in the next leap of the MOVE Index or the critical breakthrough of credit spreads. Investors need to hold their breath, as the storm is far from over.