Bets on an emergency Federal Reserve rate cut are rising sharply Monday, as mounting fears of a looming U.S. recession and sudden, severe stock market crashes – already erasing trillions in market value – prompt speculators to anticipate swift central bank action ahead of scheduled meetings.
On the CFTC-regulated prediction market platform Kalshi, contracts betting on “the number of emergency rate cuts this year” have gained notable traction in recent hours.
Odds eyeing two emergency cuts equivalent to 50 basis points in rate easing have spiked to 10% from nearly null chances a week ago. The last time the Fed executed an emergency cut was in March 2020, when it slashed rates by 50 basis points amid the escalating COVID-19 crisis.
A $10 bet on two emergency rate cuts—equivalent to a half-point drop in interest rates—would return $90 if realized.
Meanwhile, Fed futures are now pricing in five rate cuts by the end of the year, according to the CME FedWatch tool.
Traders are growing wary of cracks in the U.S. economy. The sudden rise in rate cut wagers reflects a broader fear: that either markets or the macroeconomic picture could deteriorate so quickly that the Fed is forced to step in ahead of schedule.
Conspiracy Theories of A Self-Engineered Recession Emerge
Fueling the speculative fire are political theories that the Trump administration may be intentionally inducing a recession.
The logic? Lower inflation, lower interest rates and stronger control over monetary conditions.
On Monday, Trump took to Truth Social with a bold message: “Oil prices are down, interest rates are down (the slow moving Fed should cut rates!), food prices are down, there is NO INFLATION.” He also emphasized the revenue generated from tariffs, claiming the U.S. is “bringing in Billions of Dollars a week from the abusing countries.”
Last Friday, Trump openly urged Fed Chair Jerome Powell to act swiftly. “This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always ‘late,’ but he could now change his image, and quickly.”
Peter Navarro, former trade adviser, downplayed the recession fears entirely, stating, “Any discussion of recession seems silly at this moment.”
Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report, now sees a 50% base-case probability for a 2025 recession — especially if the “tariff news cycle remains unchanged.”
Tentarelli warns that the absence of a so-called “Fed put” — the idea that the Fed will always step in to stabilize markets — leaves the economy more exposed than usual.
Goldman Sachs has revised its recession odds up to 45%, while JPMorgan has gone even higher, projecting a 60% chance.
Yardeni Pushes Back On Political Manipulation Narrative
Not all agree with the conspiracy framing. Market veteran Ed Yardeni dismissed the theory that Trump is engineering a downturn to drive rates lower.
Still, he outlined how the idea has gained traction. First, a recession could weaken the dollar, stimulate exports and shrink the U.S. trade deficit.
Subsequently, Trump’s tariffs could push manufacturers back to U.S. soil while reducing the foreign demand for American agricultural products.
In the end, lower inflation from these forces could justify a looser Fed policy and potentially lower mortgage rates.
Still, Yardeni warned that even if these theories are unfounded, the consequences of poor economic management are real and potentially devastating.
“We believe that Wall Street and Main Street prosper and suffer together. The Trump administration disagrees,” he said in a note Monday.
The S&P 500 index—as tracked by the SPDR S&P 500 ETF Trust SPY—has lost 13% since Trump’s tariff announcement last Wednesday, notching one of the deepest and fastest selloffs in modern history.
Stock Market Exposure Raises Stakes For American Households
The stock market’s vulnerability is perhaps the most immediate concern. According to Gallup’s latest poll, 62% of U.S. adults hold some form of stock market investment.
That figure jumps to 87% among upper-income Americans earning more than $100,000 a year, while 65% of middle-income earners also have market exposure. Among lower-income households earning below $40,000, the rate falls to 25%.
Data from the Federal Reserve shows that U.S. households and nonprofit organizations now hold a record 43.5% of their financial assets in equities. This heavy concentration means that a sharp drop in stock prices could have outsized effects on consumer spending and confidence.
At the end of 2024, American households held $46.8 trillion in corporate equities and mutual funds. Of that, Baby Boomers alone controlled $25.2 trillion. A 20% decline in equity prices would wipe out $9.4 trillion in household wealth — including $5 trillion from Baby Boomer portfolios, many of which are meant to fund retirements.
This sets up a dangerous dynamic: if equity markets keep falling, the resulting negative wealth effect could lead to a deep contraction in consumption, hitting middle- and lower-income households the hardest.
The confluence of economic signals, political pressure and financial market stress is pushing the Federal Reserve closer to a moment of reckoning.
Whether the recession is engineered or not, the damage is mounting.
Read now:
Photo: Shutterstock
© 2025 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
