Goldman Sachs predicts that the Federal Reserve will begin lowering interest rates in September, expecting three consecutive cuts of 25 basis points each. If employment data shows a rise in unemployment, a bigger reduction of 50 basis points might be possible. Fed officials have differing opinions. Daly mentioned that two cuts in 2025 could be appropriate, while also cautioning against premature discussions. On the other hand, Williams from the Fed appears more favorable towards a possible cut in September.

Differing Views on September Rate Change

There are mixed opinions about a rate change in September. Bank of America believes rates will remain steady, even as market indicators lean toward a cut due to weak job data. This stance could be seen as bold. As of August 5th, 2025, the market is focused on the Federal Reserve’s upcoming September meeting. There’s a clear divide: some major banks anticipate the first rate cut, while others, including Bank of America, are advocating for rates to stay put. This division creates a tense situation that traders can capitalize on. The expectation for a rate cut increased after last week’s jobs report showed unemployment rising to 4.2%. Combined with the latest Core CPI data slowing to an annual rate of 3.1%, this strengthens the argument for the Fed to ease its policies. Market pricing now indicates over a 75% chance of a 25 basis point cut next month. For those betting on a rate cut, it’s smart to position in interest rate derivatives. We’re seeing a rise in activity in options on SOFR futures, especially buying calls or call spreads that would benefit from a 25 basis point reduction. These trades are based on the current market expectations.

Market Strategies Amid Uncertainty

Nonetheless, it’s important to heed caution from Fed officials and the less decisive stance from influential members. History teaches us, as seen in the 2019 policy pivot, that the first cut in a cycle often follows significant market volatility. A major bank’s contrary view also indicates that a rate cut is not guaranteed. This uncertainty suggests that strategies betting on increased volatility could be wise in the coming weeks. Long straddles or strangles on bond ETFs might perform well, as they can profit from major market moves, whether rates are cut or held steady unexpectedly. These actions align directly with the market’s current disagreements. The chance of a larger cut of 50 basis points rests entirely on the next employment report due in early September. If the unemployment rate jumps significantly—possibly reaching 4.4%—the Fed may need to take more decisive action. Traders should closely monitor this data point as it could be the main driver of a larger market shift. Create your live VT Markets account and start trading now.

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