Kevin Hassett from the White House said the Federal Reserve is not cutting interest rates quickly enough, even though the US economy grew faster than expected in the third quarter. This growth comes from lower prices, higher incomes, and positive expectations for future income growth. However, consumer sentiment does not match the economic data, and artificial intelligence is changing jobs in various sectors. Hassett anticipates shifts in employment if GDP stays at a 4% growth rate. The US deficit has dropped by $600 billion year-over-year, and a housing plan is expected to be announced next year.

U.S. Dollar Index and the Fed’s Role

The US Dollar Index (DXY) was down 0.37% at 97.90 when this report was written. The US Dollar is crucial for global trade, making up over 88% of foreign exchange transactions. The Federal Reserve affects its value through monetary policies, including interest rate changes and actions like quantitative easing. Quantitative easing means the Fed prints more Dollars to buy US government bonds, which usually weakens the Dollar. On the other hand, quantitative tightening occurs when the Fed stops buying bonds and reinvesting, typically strengthening the Dollar. The White House claims that the Federal Reserve is slow to cut interest rates, despite unexpectedly strong economic growth. The final GDP for the third quarter of 2025 was a robust 4.2%. This indicates that political pressure for lower rates will likely increase in the coming year. Current data shows inflation has eased to 2.1% year-over-year, aligning with the Fed’s target. The labor market has slightly cooled, with job gains stabilizing around 160,000 and unemployment at 4.1%. These figures weaken the main reasons for the Fed to keep its current restrictive policy, which is at a 4.00-4.25% federal funds rate.

Market Projections and Economic Stimulus

This situation explains why the US Dollar Index is falling. It is currently near 97.90 as we approach the holiday season. Markets are clearly expecting rate cuts, a growing sentiment since the Fed paused last fall in 2024. We think the Dollar’s path will likely continue downwards in the coming weeks. For those trading interest rate derivatives, the strategy is to prepare for lower rates in the first quarter of 2026. The futures market already indicates over a 90% chance of a 25-basis-point cut at the Fed’s first meeting of the new year. We’re focusing on options on SOFR futures that will benefit as the Fed’s policies align with market expectations. This environment should keep supporting assets that thrive with a weaker Dollar. We expect currency pairs like EUR/USD to strengthen above the 1.1800 level. Gold, trading near a record $4,500, will probably see ongoing demand due to lower real yields. We’re also monitoring the AI boom, which is credited with enhancing productivity and growth without increasing inflation. Additionally, a new housing plan expected to be unveiled next year could further stimulate the economy. These factors support the “soft landing” scenario, giving the Fed room to cut rates without worrying about an economic downturn. Create your live VT Markets account and start trading now.

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