Mary C. Daly from the Federal Reserve suggests a possible rate cut in July, but without enthusiasm.

    by VT Markets
    /
    Jul 18, 2025
    The President of the Federal Reserve Bank of San Francisco stated that even though there has been progress, inflation continues to be a challenge, making it hard to adjust policy rates. The job market and economic growth are strong, but we haven’t fully achieved price stability. Rates have been kept high for years, and the effects of tariffs are not as bad as previously thought.

    Potential Rate Cuts

    The President mentioned two possible rate cuts this year but emphasized they shouldn’t be made too soon. There is optimism among businesses, and growth is steady. Any cuts, whether in July or September, are not the top priority. Rates are predicted to stay at or above 3%, which is higher than the neutral rates before the pandemic. We advise derivative traders to get ready for more market swings around upcoming economic data releases. The Consumer Price Index for May showed a promising slowdown to 3.3% year-over-year. Additionally, the economy added 272,000 jobs that month, which supports the President’s view of a strong economy, making timing tricky. This means any surprises in inflation or job reports could lead to sudden market changes. Given this situation, we believe there’s little benefit in preparing for a July rate change. Current market predictions, as shown in the CME FedWatch Tool, suggest there’s less than a 10% chance of a cut in July, but over a 60% chance for a cut by September. Therefore, strategies betting against a summer change or futures that favor a later easing start seem wiser.

    Market Implications

    We need to reconsider our long-term rate expectations based on the idea that the new neutral rate will be higher than in the last ten years. Before the 2008 financial crisis, policy rates often stayed above 3%, indicating a return to a previous norm rather than a stricter approach. This means that long-term bond futures may not rise as much as we once thought when cuts begin, and trades betting on a steep yield curve might not do well. Due to the uncertainty, we find investments related to market volatility appealing. The CBOE Volatility Index (VIX) has recently been below 13, indicating that the market may be too complacent. Buying VIX call options or futures could be a good protection against unexpected market shifts if the central bank becomes less patient or if data surprises us. Create your live VT Markets account and start trading now.

    here to set up a live account on VT Markets now

    see more

    Back To Top
    Chatbots