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Economists Forecast Rate Cuts
In a Reuters poll, 59 out of 105 economists anticipate the Federal Reserve will resume cutting interest rates in the next quarter, likely in September. Additionally, over 60% of economists expect the Fed to reduce rates at least twice in 2025.
Current forecasts for U.S. economic growth remain steady, with projections at 1.4% for 2025 and 1.5% for 2026. Some expectations are for growth to reach 3% or more in the same period.
This article indicates that a strong consensus among economists suggests a slight downward adjustment to U.S. interest rates starting in the third quarter of this year—most likely in September. That alone hints that the current monetary stance is near a turning point. The fact that over half of the surveyed analysts are also forecasting not one, but multiple cuts next year adds a bit more structure to that assumption. Their logic appears to rest on a belief that inflationary pressure is sufficiently cooling and that the labour market no longer demands aggressive tightening.
Economic growth projections remain fairly modest for now, holding just below 1.5% for both 2025 and 2026. That said, there’s a smaller camp that sees these figures climbing to 3% or even more over the same period. Though less dominant, these upward estimates can’t be dismissed outright. They tend to come from observers placing more weight on private investment, fiscal spending, and rebounding consumption once rates eventually ease.
From our perspective, this backdrop sets up a fairly narrow range of expectations in the near term and limits the probability of policy surprise. Powell did not deviate much from earlier messaging in recent remarks—sticking to the idea that rate cuts would follow sustained disinflation. Markets have broadly leaned into this thinking, but perhaps not as enthusiastically as they might have under easier conditions.
Focus On Derivatives Trading Strategy
It’s within that measured context that derivatives traders should operate. Futures contracts have already begun to price in September as a potential pivot, but our view is to check how far that assumption has extended along the curve. The early part of the yield path is already well-aligned with these forecasts. The further one goes along the time horizon, though, the more room there is for dislocations, particularly if growth surprises upwards or inflation reasserts itself.
We’ve also noted that positioning has grown tactically cautious, especially in options tied to short-term rates. The implied volatility along those products has picked up slightly, which we think reflects more uncertainty around what might happen between now and the end of July rather than broader disbelief over September cuts. Traders with exposure here may want to take another look at skew patterns and consider whether protective spreads still offer good value.
Meanwhile, we’ve seen a consistent narrowing in Treasury-OIS spreads, suggesting that confidence in the near-term rate path is firming. That makes conditions less attractive for highly directional bets in either direction—at least in the shorter maturities. Focus instead may be better placed on relative value across tenors or expressed through curve steepeners, given that the longer end could eventually face more repricing if growth data begins to firm more than projected.
If we assume these rate path expectations hold, the real vulnerability lies in how quickly sentiment could shift if only a few data points deviate. Core PCE or NFP releases above consensus could trigger a meaningful reassessment. So rather than lean heavily into the current consensus, we prefer to think about optionality and asymmetric payoffs—positions that won’t suffer much from being early but will reward sensibly if timing is right.
Lastly, we’re watching global flows. Though the Fed is setting the tone, foreign demand for U.S. debt and fiscal policy noise could nudge yields independently of official rates. Should any volatility arrive through these channels instead, it may catch out traders overly focused on domestic calendar items alone.
