**Barclays’ Rate Cut Predictions** Barclays expects the Federal Reserve to cut interest rates twice in 2025, specifically in September and December. This expectation follows comments from Powell that suggest the need for easing, especially as concerns about full employment grow. The plan includes rate cuts of 25 basis points, set to occur quarterly, with additional reductions projected for March and June 2026. By late 2026, rates could be between 3.25% and 3.50%. Barclays also warned of a 50% chance of a U.S. recession if Trump is in office. Their forecasts indicate slower job growth and an unemployment rate rising to 4.2%, with Fed rate cuts linked to weakening economic conditions. Despite these predictions, the criteria for action in September are stringent. A strong jobs report for August might lead the Fed to keep rates steady. **Jackson Hole Implications** Following recent developments from Jackson Hole, we now see a clear path for the Federal Reserve to start cutting rates, beginning with a 25 basis point reduction in September. The Fed is expanding its focus to include risks to the job market. Market expectations have changed, now indicating over a 60% chance of a rate cut at the next meeting, up from just 30% a month prior. The key factor for the September meeting will be the August jobs report, which will be available in early September. After job growth slowed to 175,000 in July, a report showing fewer than 150,000 new jobs would likely confirm a pre-emptive cut by the Fed. On the other hand, a surprise increase above 200,000 could prompt the Fed to stand still, leading to significant uncertainty. In the upcoming weeks, traders might want to prepare for lower short-term rates by buying SOFR futures or exploring options that benefit from a rate cut. The current uncertainty regarding job data suggests high implied volatility, meaning trades that capitalize on this—like straddles on Treasury options—could be effective. This strategy allows for profit from large market moves in either direction after the data comes out. Looking back, this situation mirrors the mid-1995 cycle when the Fed managed a soft landing through pre-emptive cuts. We see the yield curve steepening as short-term rates decline in anticipation of cuts, while longer-term rates remain stable. This scenario hints that trades benefiting from a widening spread between 2-year and 10-year Treasury yields could be profitable. The political environment adds another layer of risk, with a 50% chance of a recession if Trump returns to power. This possibility of a sharp economic slowdown suggests that maintaining some long-term defensive positions is wise. Options may include buying distant put options on equity indices or holding longer-term bonds as a safeguard against future downturns. Create your live VT Markets account and start trading now.

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