Christopher Waller suggests a 25 basis point rate cut as Fed’s blackout period approaches

    by VT Markets
    /
    Jul 18, 2025
    Federal Reserve Governor Christopher Waller has recommended that the Federal Open Market Committee (FOMC) lower interest rates by 25 basis points at the meeting in July. He highlighted the uncertainty about the long-term Fed Fund rate but suggested that a rate of 3% seems suitable. The Wall Street Journal considered Waller’s comments a strong endorsement for a rate cut this month. As of now, there are no Federal Reserve speakers scheduled for Friday, July 18, 2025, but unexpected appearances could happen.

    Federal Reserve Blackout Period

    The Federal Reserve’s ‘blackout’ period starts on Saturday, July 19, 2025. During this time, FOMC members and staff cannot speak publicly or give interviews, which begins two Saturdays before an FOMC meeting. In light of Governor Waller’s comments, we should now consider a 25 basis point rate cut this month as the expected outcome. The CME FedWatch Tool shows a 92% chance of this cut, a notable increase from 65% just yesterday morning. His comments, made just before the blackout period, serve as a strong signal to the market. For investment strategies, this means we should explore options on short-term interest rate futures. The price of September SOFR futures has already risen, reflecting lower expected rates. We think that buying call options on these futures is a prime opportunity to benefit from the anticipated decrease in rates throughout the summer.

    Economic Data Aligns With Fed Actions

    This anticipated rate cut aligns with recent economic data. Last week’s report showed the unemployment rate rising to 4.1%, while core CPI dropped to an annualized 2.8%. These numbers provide the FOMC with the support needed to begin easing rates. Mr. Waller’s comments confirm that the Fed is responding to the economic data as expected. We’ve observed similar actions in the past, such as leading up to the 2019 rate cuts when officials made final public appearances to set market expectations. This strategy helps prevent a chaotic market reaction on announcement day. We view his statement as a way to guide the market smoothly toward the FOMC’s upcoming actions. As a result, we might see a weakening of the U.S. dollar and a supportive environment for equity indexes. Strategies that benefit from a rally in the S&P 500, like buying calls on the SPY ETF, are becoming more attractive. This expected policy shift makes dollar-funded trades less appealing in the short term. With the outlook now clearer, we anticipate a decrease in implied volatility in the bond market. Since his comments were released, the MOVE Index, which tracks Treasury market volatility, has fallen by 5%. This suggests that the cost of options may decrease, making it easier to build positions before the FOMC meeting. Create your live VT Markets account and start trading now.

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