Daly questions the need for a significant interest rate reduction next month
by VT Markets
/
Aug 14, 2025
The Federal Reserve’s Daly stated that a big rate cut next month doesn’t seem necessary. She raised concerns that such a cut could wrongly suggest the labor market is weak.
Daly prefers a gradual shift to a more neutral interest rate over the coming year. She noted that there’s no need to rush changes based on current data.
Steady Approach Over Quick Shift
This suggests a steady approach instead of a quick change in monetary policy. Current data does not support a significant rate cut right now.
It looks like a 50 basis point cut for September is unlikely. Previously, markets, including the CME FedWatch tool, thought there was almost a 40% chance of such an aggressive move. This shows that the Federal Reserve doesn’t feel the need to take bold actions.
Honestly, the economic data does not call for panic. July’s job report added a solid 195,000 jobs, keeping unemployment at 3.8%. With the latest core inflation at 2.4%, the figures don’t suggest an urgent need for action.
This points to a strategy of selling volatility in the weeks ahead. A “gradual” approach signals the Fed’s plans, reducing market uncertainty and large price swings. This situation is very different from the unpredictable market fluctuations we witnessed in 2022 and 2023.
Reevaluating Positions In Light Of Cautious Reality
Traders should rethink positions that expected major cuts. The focus will likely move to pricing in a standard 25 basis point cut in September, or possibly a pause. We can expect changes in Fed Funds futures and options on SOFR to reflect this more cautious outlook.
For equity options, this perspective makes a strong case for limited upside moves due to aggressive easing. Strategies that work well in a steady, mild market rather than a volatile one are more suitable now. We believe a slow and steady policy path offers a solid foundation for the market.
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by VT Markets
Aug 14, 2025
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