Goldman Sachs believes the Federal Reserve will lower interest rates three times by the end of 2025. Each cut may be by 25 basis points and is expected in September, October, and December. They also forecast two additional cuts in 2026. This would bring the total rate to a range of 3% to 3.25%. Traders are becoming more confident about a rate cut in September, as many are expecting lower rates.

Market Expectations For September

The market views a September rate cut as almost guaranteed. Current fed funds futures show a 92% likelihood of the first 25 basis point reduction. This belief is growing as the September FOMC meeting approaches. Recent data supports this idea. The July 2025 Consumer Price Index (CPI) report revealed inflation dropping to 2.8%. Additionally, the recent jobs report indicated a rise in unemployment to 4.2%, giving the Federal Reserve a solid reason to ease up on policies after nearly two years of stricter measures. In light of this, we should prepare for lower yields, which suggests opportunities with Treasury futures like the 10-Year T-Note, as bond prices are likely to rise. The focus is shifting from *if* rate cuts will happen to *how quickly* they will continue until December.

Opportunities In Current Market Environment

For equity markets, this situation benefits sectors like technology and growth. Investors can consider call options on indices such as the Nasdaq 100 to take advantage of potential gains. The market’s response to the quick rate hikes of 2022 and 2023 illustrates how sensitive stocks are to interest rate changes. Volatility also offers chances. Since the first cut is widely anticipated, we may see implied volatility decrease after the September announcement. Selling premium through strategies involving the VIX or broad market ETFs could profit from this expected drop in uncertainty. As the Fed begins its easing cycle, the U.S. dollar is likely to weaken. This makes long positions in currencies like the euro or yen against the dollar appealing. We have witnessed similar trends in the past when rate differences between central banks narrow. Create your live VT Markets account and start trading now.

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