James Bullard, former St. Louis Fed president and current dean at Purdue University, expressed an interest in becoming the next Federal Reserve chair. He discussed the role with Treasury Secretary Scott Bessent, focusing on conditions like protecting the dollar’s reserve currency status, maintaining stable inflation, and preserving the Federal Reserve’s independence.<\/p>\n
The Trump administration is seeking candidates to replace Jerome Powell, whose term concludes in May, though he can remain until 2028. Both Trump and Bessent have criticised Powell’s approach, advocating for significant rate cuts. This week, the Federal Reserve is expected to lower its benchmark rate by 25 basis points due to slower job growth and inflation concerns.<\/p>\n
Bullard, known for his flexible policy approach, predicts a total of 75 basis points of easing by the end of the year, viewing tariffs as a short-term inflation influencer. He also commented on weakening labour market conditions, attributing them in part to immigration changes. Bullard emphasised the Federal Reserve’s independence and remarked on allegations against Governor Lisa Cook, insisting on her right to due process.<\/p>\n
Market trends reflect expectations of a more dovish Federal Reserve, with a 25 basis point cut anticipated this week and a potential 75 basis points by year-end. The dollar remains weak, Treasury yields have dipped, and equities are steady amid these forecasts.<\/p>\n
With markets already pricing in the 25 basis point rate cut expected this week, the focus now shifts to the path ahead. Fed funds futures contracts for December 2025 and January 2026 are already reflecting the high probability of 75 basis points in total easing by year-end. We believe the potential nomination of a known dove like Bullard solidifies this dovish outlook, making bets on further cuts more secure.<\/p>\n
This forward guidance suggests positioning for a steeper yield curve. We see an opportunity in trades that profit from short-term rates falling faster than long-term ones, such as going long 2-year Treasury note futures while shorting 10-year Treasury note futures. This view is supported by historical patterns where the yield curve steepens during the initial phases of an easing cycle, a pattern we observed starting in late 2023.<\/p>\n
Despite the firm equity market, the uncertainty surrounding the Fed’s leadership transition introduces political risk. The CBOE Volatility Index (VIX) is currently hovering around a relatively low 14, which seems to underprice the potential for market swings related to the appointment process. We think buying VIX calls or out-of-the-money put options on the SPDR S&P 500 ETF (SPY) offers a cheap hedge against any unexpected developments.<\/p>\n
The dollar is likely to remain under pressure as interest rate differentials with other major economies narrow. Rate cuts in the U.S. make holding dollars less attractive, a trend we’ve seen accelerate since the Fed’s pivot earlier this year. Derivative traders should consider strategies that benefit from a weaker dollar, such as buying call options on currency ETFs like the Invesco CurrencyShares Euro Trust (FXE).<\/p>\n
We must also watch inflation data very closely, as the memory of the high inflation we saw from 2022 to 2024 is still fresh. The latest Consumer Price Index (CPI) reading of 2.9% is still above the Fed’s 2% target, meaning any surprise uptick in inflation could quickly reverse these dovish expectations. Any signs of persistent inflation would undermine the case for the aggressive rate cuts currently being priced in.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" James Bullard eyes Fed chair role, supports rate cuts, stresses independence, and warns on inflation and labor.<\/p>\n","protected":false},"author":62,"featured_media":17021,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-30807","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/30807","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/comments?post=30807"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/30807\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/media\/17021"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/media?parent=30807"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/categories?post=30807"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/tags?post=30807"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}