Fed Governor Michelle Bowman has suggested three rate cuts at a bankers’ conference in Colorado Springs. She previously disagreed with the recent FOMC meeting, favoring lower rates. Bowman believes rate cuts are necessary due to a weakening labor market, which is overshadowing inflation risks. She advocates shifting from a moderately restrictive policy to a neutral stance, recommending three cuts in the Fed’s upcoming meetings.

Interest Rate Futures

Earlier reports indicated her push for a rate cut in September, with two additional cuts by the end of the year. Given Governor Bowman’s clear call for three rate cuts, we should expect interest rate futures to reflect a stronger possibility of a September cut. Traders are likely to buy SOFR and Fed Funds futures contracts linked to late 2025 meetings, leading to higher prices. This guidance from a Fed official, even one who dissents, offers a clear signal for market positioning. Her viewpoint is backed by recent economic data. The early August jobs report revealed that the U.S. economy added only 150,000 jobs in July, missing expectations for the third month in a row. This trend supports her argument about the declining labor market, reinforcing her stance for policy easing. Meanwhile, the inflation risks she mentions are currently under control. The latest Consumer Price Index report for July 2025 showed core inflation steady at 3.1%. While this is above the target, it hasn’t shown signs of rising again. This information gives the Federal Reserve room to respond to the evident slowdown in economic growth, which was just 1.4% for the second quarter.

Derivatives Market Strategy

In the derivatives market, this suggests a strategy for lower interest rates and potentially higher stock prices. We should anticipate increased buying of call options on major stock indices, such as the S&P 500, for expirations after the September FOMC meeting. Lower borrowing costs make stocks more appealing. This situation could also reduce market volatility as the Fed’s future plans become clearer. A clear dovish shift usually eases investor concerns, which may lower the VIX index. Consequently, traders might explore shorting volatility through VIX futures or put options in the coming weeks. We have witnessed a similar trend in financial history. In late 2023, markets began to rise significantly simply from the expectation of a Fed pivot, even before the first rate cut occurred. The anticipation of looser monetary policy can be just as impactful as the actual action. Create your live VT Markets account and start trading now.

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