In a pre-recorded Fox Business interview, US President Donald Trump said a two-percentage-point cut in interest rates would eliminate the US national deficit. He said each percentage point is worth about $600 billion. He added that a two-point cut could close the deficit without any spending cuts. He said the US should have the lowest interest rates in the world and that rates should be 2 points lower right now. He also said he expects 2026 to be “great”.

Federal Reserve Independence Market Volatility

Trump said stock market gains are positive and that markets should rise on good news. He said the US has had a strong run and he wants it to continue. He said Kevin Warsh agrees with his views and could be an influencer. He also said employment data remains solid, even after government job cuts. On Iran, Trump said Iran wants to make a deal. He said it would be foolish for Iran not to do so. There is now a clear, public push for the Federal Reserve to cut rates by a full two percentage points. This direct call changes the market backdrop and raises questions about the Fed’s independence. We should expect more volatility around upcoming Fed meetings and announcements.

Positioning For Rates Currencies And Oil

This follows the Fed’s decision to hold rates at 3.75% at its January 2026 meeting. The Fed cited core inflation that is still slightly above target. The latest Consumer Price Index showed inflation running at 2.8% year over year, which has kept the Fed cautious. Calling for a large cut directly challenges the Fed’s data-dependent approach. Because of this, it may make sense to look at options on SOFR futures, since implied volatility in the coming months is likely to rise. One possible strategy is buying calls or call spreads on Treasury bond ETFs like TLT. If the market starts to price in these cuts, bond prices could rise. The added political pressure could also push the Fed to act sooner than expected. We saw something similar in 2018 and 2019, when presidential pressure came before the Fed shifted from raising rates to cutting them. That stretch included sharp swings in equities. History suggests we should be ready for choppy trading, followed by a possible rally if the Fed pivots. For equity traders, this is a cue to watch rate-sensitive areas like technology and growth stocks. These names did well during the near-zero rate period of 2020–2021 and could attract interest again. We may consider building exposure over time using call options on the Nasdaq 100. The mention of Kevin Warsh as a possible influencer is an important signal about future plans. Warsh is seen as favoring easier policy, which suggests future Fed picks could support a low-rate agenda. This longer-term view strengthens the case for a weaker dollar. In currencies, a two-point cut would likely weaken the US dollar. EUR/USD has traded in a tight range near 1.09 over the past month. These comments could be the trigger for a breakout, which may make long euro positions more attractive. Trump’s comment that Iran is willing to make a deal adds another factor that could reduce geopolitical risk. Any agreement could push oil prices lower. Oil has been hovering near $85 a barrel. This supports looking at put options on crude oil futures or considering short exposure to the energy sector. Create your live VT Markets account and start trading now.

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