Kevin Hassett from the White House stated that the Federal Reserve is not reducing interest rates swiftly enough, despite the US economy’s faster-than-expected growth in the third quarter. The growth is supported by lower prices, increased incomes, and positive expectations for income growth.
Consumer sentiment does not align with economic data, and artificial intelligence is impacting jobs across sectors. Hassett expects employment changes if GDP maintains a 4% growth rate. The US deficit has decreased by $600 billion year-over-year, and a housing plan is in progress for announcement the next year.
Us Dollar Index And The Fed’s Role
The US Dollar Index (DXY) traded 0.37% lower at 97.90 at the report’s writing time. The US Dollar is pivotal in global trade, accounting for over 88% of global foreign exchange turnover. The Federal Reserve influences its value through monetary policies, such as interest rate adjustments and actions like quantitative easing.
Quantitative easing involves the Fed printing more Dollars to buy US government bonds, generally resulting in a weaker Dollar. Conversely, quantitative tightening, where the Fed ceases bond purchases and reinvestments, is typically beneficial for the Dollar’s value.
The White House is publicly stating that the Federal Reserve is behind the curve on cutting interest rates. This comes despite surprisingly strong economic growth, with the final third-quarter GDP figures for 2025 confirmed at a robust 4.2%. This creates a clear signal that political pressure for lower rates will intensify into the new year.
Looking at the data, we see inflation has cooled to 2.1% year-over-year as of the last report, bringing it in line with the Fed’s target. The labor market has also softened slightly, with job gains normalizing around the 160,000 mark and unemployment at 4.1%. These figures remove the primary arguments for the Fed to maintain its current restrictive policy stance, which sits at a 4.00-4.25% federal funds rate.
Market Projections And Economic Stimulus
This backdrop explains why the US Dollar Index is falling, currently trading near 97.90 as we approach the holidays. Markets are clearly anticipating rate cuts, a sentiment that has been growing since the Fed’s cautious pause back in the fall of 2024. We believe the path of least resistance for the dollar remains downward in the coming weeks.
For those trading interest rate derivatives, the play is to position for lower rates in the first quarter of 2026. The futures market is already pricing in over a 90% probability of a 25-basis-point cut at the Fed’s first meeting of the new year. We are looking at options on SOFR futures that will benefit as the Fed’s policy aligns with market expectations.
This environment should continue to support assets that benefit from a weaker dollar. We expect currency pairs like the EUR/USD to build on their strength above the 1.1800 level. Gold, already trading near a record $4,500, will likely see sustained buying pressure due to falling real yields.
We are also watching the narrative around the AI boom, which is being credited for boosting productivity and growth without fueling inflation. Furthermore, a new housing plan set to be announced in the new year could provide an additional economic stimulus. These factors reinforce the “soft landing” scenario, allowing the Fed room to cut rates without fearing an economic collapse.
