UBS forecasts that price pressures will continue through this year into 2026. However, they anticipate that the Federal Reserve could start easing policy.<\/p>\n
With inflation expected to stay controlled amidst a slowing US economy, UBS predicts the Fed might reduce interest rates at its September meeting. Their base scenario includes a total of 100 basis points in rate cuts during the easing cycle.<\/p>\n
Despite ongoing price pressures, UBS suggests that slower growth and moderating core inflation could allow the central bank to prioritise economic support. This approach may involve avoiding prolonged restrictive interest rate levels.<\/p>\n
We see continued upward price pressures, but a slowing US economy suggests the Federal Reserve will soon shift its focus. The July 2025 non-farm payrolls report, which showed job growth slowing to 155,000, supports this view. This economic cooling should give the Fed enough reason to begin cutting interest rates as soon as its September meeting.<\/p>\n
With the market already pricing in a high chance of a September rate cut, derivatives traders are looking at the path beyond that. The CME FedWatch Tool now indicates over a 70% probability of a 25 basis point reduction next month. We believe trades positioned for a faster-than-expected easing cycle, potentially using options on SOFR futures, could be advantageous if the Fed signals more cuts are coming.<\/p>\n
This expected policy shift is generally positive for equities, as lower rates increase the present value of future corporate earnings. We are seeing increased interest in call options on the S&P 500 and Nasdaq 100 with expirations in October and December 2025. This strategy mirrors the playbook from late 2023, when anticipation of a Fed pivot sparked a significant market rally.<\/p>\n
A gradual easing cycle, rather than a sharp reaction to a crisis, typically dampens market volatility. The VIX index, currently hovering around 16, could trend lower if the Fed successfully engineers a soft landing for the economy. Traders might consider strategies that benefit from this, like selling out-of-the-money call options on the VIX.<\/p>\n
We also anticipate that a full 100 basis point easing cycle would likely reduce the appeal of the US dollar. The dollar index (DXY) has already slipped nearly 2% over the last month in anticipation of this policy change. We may see traders using options to take bearish positions on the dollar against currencies whose central banks are on a different policy path.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" UBS anticipates rate cuts starting September as inflation moderates and economic growth slows into 2026.<\/p>\n","protected":false},"author":62,"featured_media":17023,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-28906","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-ca\/wp-json\/wp\/v2\/posts\/28906","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=28906"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/28906\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17023"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=28906"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=28906"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=28906"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}