Goldman Sachs’ chief economist, Jan Hatzius, talked about Federal Reserve Chair Jerome Powell’s recent speech that highlighted growing risks in the job market. Powell explained that the labor market is currently balanced, with both the supply and demand for workers dropping. He warned that these employment risks could quickly lead to more layoffs and higher unemployment rates. Powell also mentioned that GDP growth has significantly slowed down, partly due to a decrease in potential output, not just cyclical demand concerns. This cautious outlook has sparked hopes in the market for a possible rate cut by the Federal Open Market Committee (FOMC) in September.

Federal Reserve Meeting

The FOMC’s next meeting is set for September 16-17, and many expect a 25 basis point cut in the Fed Funds rate. Powell made his remarks at the Jackson Hole symposium, where economists gather to discuss monetary policy and other economic issues. Chair Powell’s remarks from Jackson Hole indicate a notable shift to a more cautious approach regarding the economy. His warning about job market risks supports our belief that a rate cut is imminent. The derivatives market reflects this sentiment, with the CME FedWatch Tool indicating over an 85% chance of a 25-basis-point cut at the September meeting. This scenario indicates we should prepare for lower interest rates soon. We can express this view by using options on SOFR futures, which would benefit us if the Fed cuts rates as expected. This is a straightforward response to the market’s reaction to the Fed’s more dovish stance. Lower borrowing costs should help boost equities, especially growth and tech stocks. We are looking into call options on the Nasdaq 100 index to take advantage of a possible relief rally ahead of the September FOMC meeting. In the easing cycle of 2019, we saw that even the anticipation of rate cuts could drive market gains.

Market Implications

Powell’s concerns are valid, as current data supports this cautious outlook. The latest July 2025 JOLTS report revealed a steady decline in job openings, while weekly jobless claims have risen to an average of 240,000. This is a significant shift from the much stronger job market we had just a year ago. The overall economy is also showing signs of slowing down, which gives the Fed more latitude to act. The advance estimate for Q2 2025 GDP growth was only 1.5%, a significant decline from past quarters. With the latest Core PCE inflation reading stable at 2.7%, the Fed has a strong reason to take steps to stimulate growth without worrying about inflation rising. A rate cut would likely weaken the U.S. dollar. Thus, we should consider derivatives that would benefit from a falling dollar compared to other major currencies. Buying call options on the euro or Japanese yen for October expiration could be a smart move to prepare for this situation. Finally, the likelihood of a rate cut may lessen overall market uncertainty in the short term. This could cause a drop in the VIX, the main gauge of market volatility. We see a chance to sell VIX call spreads, a strategy that would profit if market volatility remains low or decreases leading up to the Fed’s September decision. Create your live VT Markets account and start trading now.

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