Williams sees little inflation risk from tariffs and is uncertain about September rate cut expectations.
by VT Markets
/
Sep 4, 2025
The Federal Reserve’s Williams did not say whether the market’s 95% expectation for a September interest rate cut is correct.
There is good news: tariffs are not currently driving inflation. However, it may take time to understand their full effect on inflation data.
Key Inflation Risk & Federal Reserve
Recent comments indicate that the Federal Reserve now sees a key inflation risk as less serious. This lower concern about tariffs could open the door for a rate cut this month. Williams did not challenge the market’s strong belief in a September cut, which further supports this idea.
This is backed by recent data. The August 2025 core CPI report shows inflation easing to 2.8%, even with new tariffs introduced earlier this year. This is different from the ongoing supply-chain inflation of 2022, suggesting that businesses are absorbing costs instead of passing them on. This trend gives the Fed more confidence that inflation is declining.
The overall economic situation also points to a rate cut, as Q2 2025 GDP growth was only 1.5%, and last week’s jobs report fell short of expectations. With the economy slowing down, the Fed is likely more focused on supporting growth rather than tackling inflation. Traders should position themselves to benefit from lower short-term interest rates.
Future Cuts and Economic Strategy
With Fed Funds futures already reflecting the rate cut, attention should turn to future cuts. We can use options on SOFR futures to prepare for continued easing in the fourth quarter. The comments also suggest that any surprising strength in upcoming data could create significant volatility, making long-volatility positions appealing.
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by VT Markets
Sep 4, 2025
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