Nomura Holdings anticipates the Federal Reserve will start easing policy with a 25 basis point rate cut in September. This prediction is based on perceptions of a weakening US labour market and diminishing inflation risks.<\/p>\n
The bank’s economists also predict two additional quarter-point cuts in December and March. This update is earlier than Nomura’s previous expectation, which foresaw the initial rate cut later in the year.<\/p>\n
Many analysts had already predicted a rate cut within the coming three months. Nomura\u2019s revision reflects increasing confidence in an earlier intervention by the Federal Reserve.<\/p>\n
We now see the Federal Reserve starting to cut interest rates with a 0.25% reduction in September. This shift in thinking is based on a clear cooling in the US job market and lower inflation risks. We anticipate two more cuts of the same size, one in December and another in March 2026.<\/p>\n
This view is strengthened by recent economic data released this month. The July jobs report showed the economy added only 155,000 jobs, below expectations, while the unemployment rate ticked up to 4.1%. Similarly, the latest Consumer Price Index report revealed that core inflation has fallen to an annual rate of 2.8%, moving closer to the Fed’s target.<\/p>\n
For derivative traders, this means positioning for lower short-term interest rates in the coming weeks. We believe buying Secured Overnight Financing Rate (SOFR) futures contracts for late 2025 and early 2026 delivery is a direct way to trade this expectation. These contracts should gain value as the market fully prices in the upcoming rate cuts.<\/p>\n
In the equity markets, a more supportive Fed policy should help stock prices. We would consider buying call options on major indices like the S&P 500, as lower borrowing costs tend to boost corporate earnings and investor sentiment. This strategy offers a defined-risk way to capture potential upside before the September meeting.<\/p>\n
Historically, when the Fed signals a clear pivot towards easing, as it did in mid-2019, market volatility tends to settle after an initial adjustment. This suggests that implied volatility, as measured by the VIX, may decline after the September announcement clarifies the Fed\u2019s path. Traders could look at strategies that benefit from falling volatility once the cut is confirmed.<\/p>\n
A rate cut will also likely put downward pressure on the U.S. dollar. We see opportunities in currency derivatives, such as taking long positions in euro or yen futures against the dollar. This is because lower U.S. interest rates make the dollar less attractive to foreign investors.<\/p>\n
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