Kashkari from the Federal Reserve recently talked about possible changes to the interest rate. The economy is slowing down, but we don’t fully understand how tariffs are affecting inflation. Businesses have increased their inventory ahead of time, which has helped reduce the impact of the tariffs so far.

Addressing Economic Slowdown

Despite these efforts, the Federal Reserve needs to respond to the downward trend in economic data. If this slowdown continues, they may consider cutting rates twice this year. If inflation rises due to tariffs, the Fed might pause or even raise rates. It’s important to keep a close watch on the ongoing effects of tariffs. It might make sense to cut rates soon and then pause, rather than waiting too long to take action. Wage growth is slowing down, indicating that the job market is cooling off. While the unemployment rate matters, the Fed acknowledges that adjustments may be necessary. Kashkari did not comment on presidential personnel decisions but affirmed the importance of accurate data from the Bureau of Labor Statistics. In the end, people can see the true state of the economy through jobs and inflation data. We should prepare for one or two interest rate cuts before the year ends. The economy is clearly slowing down, and the Federal Reserve must respond to the evident data. The recent jobs report from July 2025, which showed a growth of only 95,000 nonfarm payrolls, confirms this slowdown. In the derivatives market, we might benefit from lower short-term rates. This involves looking at instruments linked to the SOFR, which now indicates an over 80% chance of a rate cut at the September meeting. This reflects the clear signs of economic weakness.

Stock Market Considerations

The current environment is typically good for stock index futures. A supportive Federal Reserve often leads to higher stock prices as borrowing costs drop and market sentiment improves. We saw a similar effect after the policy change in early 2019, which helped extend the bull market. However, we must keep a close eye on inflation, particularly with uncertainties around tariffs. The latest CPI reading for July 2025 is 2.8%, which gives the Fed some leeway to act now. Still, a sudden increase due to trade policy might force them to pause. This uncertainty could lead to more market volatility, making options strategies more attractive than direct futures positions. The cooling labor market is another important factor. With wage growth at 3.5% per year and the unemployment rate rising to 4.2%, these figures support the case for easing policy. They indicate that the tightness in the labor market is fading, which could decrease inflationary pressures. The current approach seems to lean towards cutting rates now and pausing later if needed. Delaying action for perfect clarity on tariffs could risk a sharper slowdown. This suggests a strong inclination to ease policy in the upcoming weeks. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now