Recession Fears Rise as Markets Now See Fed Rate Cuts as Economic Warning Signs

For the first time in 2025, traders expect three rate cuts, with a 50/50 chance of one coming as early as May—a sharp change from last week when most expected rates to hold steady.

Despite the fact that cheaper borrowing should help both consumers and businesses, markets have fallen as economic worries grow. The S&P 500 has dropped to its lowest level since before Trump’s election, while small-cap stocks in the Russell 2000—usually winners when rate cuts are expected—have fallen over 6% this year, much worse than the flat S&P 500.

This market worry comes from several disappointing economic reports: January showed the first drop in consumer spending in nearly two years, the biggest monthly retail sales decline in a year, ongoing housing market weakness, and unexpected drops in manufacturing and construction.