Goldman Sachs expects the Federal Reserve to implement three rate cuts by the end of 2025. These cuts will likely be in 25 basis point increments, set for September, October, and December. <\/p>\n
The bank also predicts two more rate cuts in 2026, ultimately leading to a terminal rate range of 3\u20133.25%. Traders are increasingly confident about a rate cut come September, with market sentiment favouring reduced rates.<\/p>\n
The market is now treating a September rate cut as nearly a sure thing. We are seeing fed funds futures pricing in a 92% probability of the first 25 basis point reduction. This conviction is building as the September FOMC meeting gets closer.<\/p>\n
Recent data is fueling this view, with the July 2025 CPI report showing inflation cooling to 2.8%. Coupled with a softer jobs report where unemployment ticked up to 4.2%, the Federal Reserve has a clear path to begin easing. We see this as a response to nearly two years of restrictive policy.<\/p>\n
In response, we should be looking at positioning for lower yields ahead. This means options on Treasury futures, like the 10-Year T-Note, could be favorable as bond prices rise. The focus is shifting from *if* they will cut to how fast they will continue cutting through December.<\/p>\n
For equity markets, this environment is a tailwind, especially for technology and growth-oriented sectors. We can use call options on indices like the Nasdaq 100 to gain exposure to the upside. The market’s reaction after the rapid hikes of 2022 and 2023 shows how sensitive stocks are to rate policy.<\/p>\n
Volatility itself presents an opportunity. With the first cut being so widely expected, we might see implied volatility drop after the September announcement. Selling premium through strategies on the VIX or broad market ETFs could capture this expected decline in uncertainty.<\/p>\n
The U.S. dollar is expected to weaken as the Fed starts its easing cycle. This makes long positions in currencies like the euro or the yen against the dollar attractive. We have seen this pattern before when rate differentials between central banks begin to shrink.<\/p>\n
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