Federal Reserve official Bullard is open to becoming the next Fed Chair after a recent discussion with Treasury Secretary Bessent. He stresses the importance of keeping inflation low and stable while respecting the Fed’s independence, as defined by the Federal Reserve Act. Bullard believes that tariffs cause only a temporary rise in prices, not ongoing inflation. He expects interest rates to drop, forecasting cuts in September and possibly later this year, totaling a 100 basis point reduction by the end of next year.

Tariffs and Economic Growth

Bullard thinks tariffs will slow economic growth, similar to how global taxes impact the world economy. However, he does not anticipate this slow growth to continue into next year. He believes that less regulation, a business-friendly atmosphere, and advancements in AI will support economic growth in the coming year. The outlook for interest rates is becoming clearer, with a possible cut as early as September 2025. We expect another rate cut later this year, leading to a total easing of 100 basis points by August 2026. This sets a predictable course for monetary policy. Bullard’s viewpoint is backed by new economic data. The Consumer Price Index (CPI) for July 2025 showed inflation cooling at 2.8%, down from previous highs. Additionally, second-quarter GDP growth was revised down to a modest annualized rate of 1.5%, giving the Fed flexibility to stimulate a slowing economy. For traders, this means preparing for lower short-term rates. The SOFR futures market indicates that contracts for late 2025 and early 2026 are likely to rise. This scenario also favors a steeper yield curve since short-term rates decrease faster than long-term rates.

Market Sentiments and Strategy

This situation resembles the market shift we saw in late 2023 when the Fed first suggested ending its rate hikes. Back then, the market surged in anticipation of rate cuts in 2024. We might be entering a comparable phase of reassessing prices across asset classes. With clear forward guidance, we can expect less volatility in the bond market. The MOVE Index, which tracks implied volatility in Treasury options, has dropped from over 100 to 85 earlier this year. This trend suggests selling options on interest rate futures could be a smart move for those expecting continued stability. The combination of lower rates and a pro-business climate is a positive sign for the stock market, especially for growth and tech sectors. We might explore long positions through call options on the Nasdaq 100 to benefit from the ongoing AI boom. This perspective indicates that economic growth will speed up heading into 2026. Still, we need to be cautious about the influence of tariffs, which may pose a challenge to short-term growth. This concern creates uncertainty in the market, indicating a need for protective measures. We could consider hedging our bullish equity positions in sectors most affected by global trade, such as industrials and materials. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now