New York CNN Business  — 

The trade war-driven turbulence in financial markets has increased calls from Wall Street and Washington for the Federal Reserve to come to the rescue.

President Donald Trump urged the Fed on Tuesday to match China’s central bank by cutting rates. “It would be game over, we win!” Trump tweeted.

Monday’s market mayhem caused investors to ramp up their rate-cut odds. The chance the Fed lowers rates by the end of the year climbed to roughly 70%, according to CME’s FedWatch Tool. A month ago, it was just 31%.

“Markets are signaling that both the US and China have blundered into a minefield,” Nicholas Colas, co-founder of DataTrek Research, wrote in a note to clients.

The Dow plunged 617 points, or 2.4%, on Monday after China retaliated against US tariffs by imposing levies on $60 billion of American goods.

Although stocks rebounded a bit on Tuesday, the tit-for-tat tariffs darken the outlook for a near-term trade agreement and threaten the global economy.

How low do stocks need to go?

However, the Fed may be reluctant to act unless the situation badly deteriorates.

The S&P 500 would need to plummet to as low as 2,305 before the Fed would cut rates, according to a survey of global fund managers by Bank of America Merrill Lynch.

A decline to that level would amount to a full-blown bear market, marking a 22% decline from the S&P 500’s all-time high. It would also be 19% below Tuesday’s close.

In other words, the Fed shouldn’t be counted on for help until investors have priced in a recession.

“I don’t think the Fed will react unless we are seeing a very big slowdown,” said Mustafa Sagun, chief investment officer at Principal Global Equities, which manages more than $350 billion. “I see a low probability for a rate cut this year.”

Zero percent change of a rate hike

The futures market, however, says otherwise.

Investors see just a 30% chance that the Fed holds the line and keeps interest rates steady in 2019, according to CME. And there’s a zero percent chance that the Fed even raises rates just once.

Boston Fed President Eric Rosengren, a voter on Fed policy, said he’s “not necessarily” expecting a rate cut. However, he left the door open for one.

“If the impact of the tariffs — and whatever financial market reaction to those tariffs is — causes more of a slowdown,” Rosengren told Reuters, “then we do have the tools available to us, including lower interest rates.”

Esther George, an inflation hawk and president of the Kansas City Fed, acknowledged on Tuesday that the tariff battle is a threat to the otherwise solid US economy. But George downplayed recent concerns about decelerating inflation.

“In the context of a growing economy and job gains, it doesn’t demand a Fed policy response in my view,” George said in a speech.

Meanwhile, investors, bracing for more potential trouble in financial markets, are hedging their bets.

A record-high 34% of investors polled by Bank of America said they have taken out protection against a sharp fall in stocks over the next three months.

With the Fed likely on hold and the trade war in limbo, buying some insurance makes sense right about now.