UBS believes that Federal Reserve Chair Powell will support interest rate cuts at the September FOMC meeting, unless strong job data or unexpected inflation appears. The bank predicts four quarter-point cuts by January 2026, starting this September. UBS expects U.S. interest rates to fall, while European rates remain very low. They anticipate that global stocks will rise over the next 6–12 months due to Fed easing and strong growth in corporate spending.

Interest Rate Cuts

We think Fed Chair Powell will push for a rate cut at the September FOMC meeting. The recent July 2025 inflation report shows the Consumer Price Index fell to 2.8%, moving closer to the Fed’s target. This, along with a small increase in unemployment to 4.1% last month, supports the case for starting an easing cycle. In light of this, traders in interest rates should consider betting on lower rates. One approach is to buy futures contracts related to Fed Funds or SOFR rates for December 2025 and March 2026. This reflects the expectation that the market hasn’t fully accounted for the four rate cuts we foresee by early 2026. For stock markets, the combination of anticipated Fed easing and strong corporate spending should spark a rally in the next six months. We recommend buying out-of-the-money call options on the S&P 500 and Nasdaq-100 indices, set to expire in late 2025. This strategy allows for potential profits as borrowing costs decline.

Market Volatility and Dollar Weakness

In the weeks leading up to the September meeting, we expect increased market volatility as traders prepare for the announcement. A look back at the start of the 2019 easing cycle shows similar spikes in volatility before the first cut. Traders might consider buying VIX futures or options to capitalize on this expected uncertainty. This policy change is likely to weaken the U.S. dollar, especially since European central bank rates are expected to stay low. We see an opportunity to short the dollar against major currencies. Taking a long position in EUR/USD futures could be an effective way to trade on the narrowing interest rate gap between the U.S. and Europe. Create your live VT Markets account and start trading now.

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