Either no interest rate cut or five cuts! The market has serious disagreements on the Federal Reserve's interest rate cut expectations, "investors need to be prepared for everything."

Currently, the market's divergence on the Federal Reserve's interest rate cut path has reached a historically rare level, with some, like Morgan Stanley, predicting no cuts, while others, like UBS, anticipate four cuts.

On April 4, Mark Haefele, Chief Investment Officer of UBS Global Wealth Management, issued an assessment report to clients, stating that the Federal Reserve must now cut rates up to four times this year.

Like Haefele, the market consensus now believes that the Federal Reserve will cut rates a maximum of four times this year, with the current federal funds rate maintained between 4.25% and 4.5%.

However, Michael Gapen, Chief U.S. Economist at Morgan Stanley, believes that the Federal Reserve may not cut rates this year, expecting the Fed to be forced to wait until next year to cut rates again. According to previous reports from Wall Street, Morgan Stanley has pushed back its next rate cut to March 2026, citing inflation risks from tariffs. Gapen stated in the report: “The Federal Reserve will find it difficult to ignore short-term inflation pressures and quickly ease policy.”

Investors Need to Prepare for All Possibilities

On April 3, the U.S. market experienced a double whammy of stock and currency declines, with U.S. Treasury prices soaring and yields significantly dropping, as the yield on the 10-year U.S. Treasury bond briefly fell below 4%, as traders increased their bets on a Federal Reserve rate cut.

Currently, traders seem to generally agree with UBS's Haefele's view: the pressure to cut rates to support a slowing economy outweighs inflation concerns.

But as Krishna Guha of Evercore ISI stated, investors need to prepare for all possibilities. Guha mentioned in a report to clients:

“At present, the probabilities of no rate cuts, two to three rate cuts, or even more than five rate cuts during an economic recession are roughly equivalent.”

The divergence in Wall Street investment banks' expectations for Federal Reserve rate cuts also highlights the unusual complexity of the current global economic environment this year following Trump's announcement of a new round of tariffs.

New tariffs could reach over 50% in some cases, which could both weaken economic growth (thus necessitating rate cuts) and push inflation rates beyond policymakers' expectations (thus necessitating a delay in rate cuts). This is why “stagflation” is being increasingly mentioned in financial circles.

Risk Warning and Disclaimer

The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at their own risk