The likelihood of an emergency interest rate cut by the Federal Reserve has surged significantly on prediction markets as Donald Trump’s trade conflict escalates.
A prediction market with over $360,000 in stakes indicates that these chances have climbed to 31%, up from 15% as of April 1. Another market places these odds even higher at 41%, the highest since November of last year.
These rising expectations follow several analysts revising their economic forecasts for the U.S. in light of the escalating trade tensions. Recently, the U.S. enforced a 104% tariff on all goods from China, a sweeping policy that is set to greatly affect both economies. China exports about $432 billion worth of goods to the U.S. each year, contributing to a total trade volume of $582 billion between the two countries.
Additionally, the United States has imposed widespread tariffs on several important trading partners, including the European Union, Japan, South Korea, and Vietnam.
Major Wall Street firms such as JPMorgan, BlackRock, and Goldman Sachs have all increased their recession predictions for the year. Consequently, an emergency interest rate cut by the Federal Reserve is becoming more likely as a measure to lower borrowing costs and inject liquidity into the economy.
Impacts on Bitcoin, Cardano, XRP, and other altcoins
This year, Bitcoin (BTC), Cardano (ADA), and Ripple (XRP) have plunged into a bear market, reflecting the broader decline in stock markets. The Dow Jones, S&P 500, and Nasdaq 100 have all dropped over 20% from their 2024 peaks, signaling a bear market.
Historically, risky assets such as stocks and cryptocurrencies tend to perform well when the Federal Reserve executes an emergency interest rate cut. A notable instance occurred in March 2020 when the fear and greed index fell into the extreme fear zone as the pandemic unfolded.
Following a sequence of interest rate reductions, quantitative easing, and fiscal stimulus, both crypto and stock values saw remarkable increases. Bitcoin surged from below $4,000 in March 2020 to over $69,000 within a year. Likewise, XRP rose from $0.12 to nearly $2, while Cardano experienced a meteoric rise to $3, reaching a market cap of $91 billion.
Donald Trump has begun discussing fiscal stimulus measures. Reports indicate that the administration is considering bailouts for farmers and tax credits to assist exporters in adapting to the new economic environment.
Thus, a blend of accommodating monetary policies from the Fed and additional fiscal stimulus is likely to elevate prices for Bitcoin, Cardano, and XRP.