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    Daly discusses how economic caution affects growth and raises concerns about declining male workforce participation.

    by VT Markets
    /
    Aug 6, 2025
    The Federal Reserve Bank of San Francisco is taking a careful approach that impacts growth but does not stop it altogether. There is worry about the falling participation rate of prime-age males in the labor force. Mary Daly, the Bank’s President, talked about possible policy changes in the coming months. This situation might lead to discussions about rate cuts to tackle economic issues.

    Potential Policy Adjustments

    We expect policy changes soon, likely involving interest rate cuts. This shift is due to slower economic growth, highlighted by the advance estimate of 1.5% GDP growth for the second quarter of 2025. These signs suggest the Federal Reserve wants to take action before a more severe slowdown occurs. The declining prime-age male labor force participation rate, which a recent jobs report shows dropping to 87.5%, adds to the concern about a slowing economy. With the July Consumer Price Index showing inflation decreasing to 2.4%, the Fed may feel it can comfortably make a move. This development may encourage them to cut rates, especially as inflation approaches the 2% target.

    Market Implications and Trading Strategies

    In the derivatives market, this suggests positioning for lower short-term rates, already being reflected in SOFR and Fed Funds futures. Right now, markets indicate an 85% chance of a 25 basis point cut by the September FOMC meeting, making long positions in these futures a strong bet on this expectation. Additionally, we might see a drop in market volatility if investors view these changes as stabilizing. For equity traders, this situation could be very beneficial, similar to the “mid-cycle adjustment” we saw in 2019. Buying call options on major indices like the S&P 500 could help take advantage of a possible rally driven by easier financial conditions. This strategy offers defined risk while allowing for potential gains from the expected policy change. Create your live VT Markets account and start trading now.

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