Minneapolis Fed President Kashkari is more confident that the effects of tariffs on inflation will be short-lived. He noted there is still uncertainty about how many more rate cuts might be needed to maintain a neutral stance. Even if short-term rates are lowered, long-term rates may not decrease. Kashkari pointed out that key inflation factors, like housing and non-housing services, seem to be on the decline. He also commended Powell for fostering strong agreement within the Fed, emphasizing that outside political influences did not affect their recent discussions. ### Monitoring The Labour Market While the labor market isn’t weak, Kashkari stressed that the Fed must keep a close eye on it. The overall sentiment hints at more rate cuts possibly happening this year, which gives some confidence. Recent statements indicate a growing belief that tariff-related inflation is just a temporary issue. This perspective supports market expectations for two additional rate cuts before the year wraps up. As a result, Fed funds futures suggest there’s over an 85% chance of a 25-basis-point cut at the November meeting. This cautious approach is favorable for equity markets, which tend to do well with lower interest rates. It may be wise to consider buying call options on major indices like the S&P 500 or selling put spreads to earn premium with limited downside risk. The VIX, currently around 14, might decline further as Fed policy becomes clearer and more accommodating. An intriguing point is that long-term rates might not fall along with short-term rates. This could lead to a yield curve steepening trade, allowing us to benefit from the widening gap between 2-year and 10-year yields. A common strategy is to go long on front-end rate futures while shorting longer-duration Treasury futures. ### Fed’s Confidence In Inflation Metrics The Fed feels optimistic due to cooling core inflation metrics. The latest Core PCE reading for August 2025 was at 2.6%. The labor market is also starting to soften, with job growth slowing to around 150,000 jobs last month and unemployment rising to 4.1%. These numbers provide the Fed the flexibility to ease policy without fearing an overheating economy. This situation mirrors the approach used in 2019 when the Fed shifted from increasing rates to cutting them due to global growth concerns. That “mid-cycle adjustment” gave a significant boost to risk assets until the end of that year. Historical patterns suggest a positive environment for equities in the upcoming months. **[Create your live VT Markets account](https://www.vtmarkets.com/trade-now/) and [start trading](https://myaccount.vtmarkets.com/login) now.**

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