Goldman Sachs suggests that recent inflation data in the US indicates that price increases from tariffs are likely to be short-lived. These tariffs haven’t yet led to significant rises in consumer prices. The bank believes that attention will soon shift to employment data, which is closely tied to the Federal Reserve’s role. Weak job market statistics could support the case for easing monetary policies.

Goldman’s Rate Cut Suggestion

Goldman also points out that the Consumer Price Index report backs the idea of a possible “insurance” rate cut in September. This would help protect the economy from potential risks. Although inflation continues to rise, worries about the job market are becoming more important for the Federal Reserve. Recent inflation figures align with our view that the impact of tariffs on prices will likely decrease. As a result, focus will likely move from inflation to the job market’s health. A weaker labor market could provide the Federal Reserve with justification to ease policies. This perspective is gaining traction as we analyze last month’s data. The July 2025 jobs report revealed the economy added just 155,000 jobs, falling short of the 190,000 expected. Additionally, the unemployment rate rose to 4.0%. This follows the June JOLTS report, which showed job openings at their lowest since early 2022, further supporting the narrative of a slowing labor market.

Importance of Recent Economic Indicators

For derivative traders, this strengthens the argument for positioning ahead of a possible September “insurance” rate cut. The market is already responding, with Fed funds futures indicating about a 70% chance of a 25 basis point cut in September. Traders should closely monitor upcoming labor data, as any signs of weakness could reinforce these expectations. With the uncertainty in mind, equity options are gaining interest. The VIX, currently around 16, may spike before the next jobs report in early September and the Fed’s subsequent decision. Buying VIX calls or put options on the S&P 500 could be an effective hedge against potential market instability if the employment data is unexpectedly weak. This scenario mirrors previous proactive Fed measures, increasing the likelihood of a rate cut. It is similar to the mid-1995 cycle when the Fed lowered rates as a precaution to maintain a soft landing and extend economic growth. This historical context suggests that any upcoming move may focus more on supporting growth rather than combating a downturn. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now