Economic Predictions

Bank of America’s Moynihan spoke on CNBC about the economy and noted Trump’s focus on industry laws and regulations. Bank of America’s economists predict that the US economy will grow by about 1.5% this year, without expecting a recession during this time. They believe the Federal Reserve will not cut interest rates soon because inflation remains high. A rate cut is only expected in 2026.

Market Discrepancy

However, market analysts suggest a strong chance of rate cuts happening soon. There is a 91% likelihood of a cut in September, bringing rates down to between 4.00% and 4.25%, and a 58% chance of another cut in October. Many expect additional cuts by the year’s end. 2025-08-05T19:26:23.331Z We see a significant gap between what the market expects and our economic outlook. The market believes a rate cut is certain for September, but we project steady 1.5% growth for the US economy this year and no signs of a recession. This stability, combined with ongoing inflation, means the Federal Reserve has no immediate reason to cut rates. The latest inflation report from July 2025 shows core inflation at 3.4%, which is still above the Fed’s target. Also, the recent jobs report indicated the economy added a healthy 210,000 jobs, supporting the Fed’s decision to remain cautious. Therefore, we think the market is overly optimistic about when any rate cuts will occur. Traders in derivatives should think about selling interest rate futures, like December 2025 SOFR futures, which are priced low right now. If the Fed maintains its current stance, these contracts will gain value as market expectations change. Another strategy is to use options to prepare for higher rates lasting longer. We could buy put options on long-term Treasury bond ETFs, which would profit if bond prices drop as hopes for rate cuts fade. This situation reminds us of 2023, where traders consistently misjudged when the Fed would pivot. The political landscape, emphasizing reduced regulations, supports a stable economy without a recession. This decreases the need for the Fed to intervene to boost growth. Therefore, it makes sense to bet against the anticipated rate cuts that the market is so confident about. Create your live VT Markets account and start trading now.

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