Insights 
VT 
Fed Governor Michelle Bowman advocated for three rate cuts during a bankers’ conference in Colorado Springs. Previously, she dissented from the recent FOMC meeting, leaning towards reducing rates.
Bowman’s expectation for rate cuts stems from the weakening labour market overshadowing inflation risks. She supports altering the moderately restrictive policy to a neutral stance, with three cuts in the Fed’s remaining meetings.
Interest Rate Futures
Reports earlier mentioned her call for a rate cut in September, with two more by the end of the year.
Given Governor Bowman’s explicit call for three rate cuts, we should anticipate interest rate futures to more aggressively price in a September rate cut. Traders will likely be buying SOFR and Fed Funds futures contracts tied to the late 2025 meetings, pushing those prices up. This forward guidance from a Fed official, even a dissenting one, provides a clear signal for positioning.
Her reasoning is supported by recent economic figures. The early August jobs report showed that the U.S. economy added only 150,000 jobs in July, falling short of expectations for the third consecutive month. This trend provides tangible evidence of the weakening labor market Bowman highlighted, strengthening her case for easing policy sooner rather than later.
At the same time, the inflation risk she is downplaying appears contained for now. The most recent Consumer Price Index report for July 2025 showed core inflation holding steady at 3.1%, which, while above target, has not shown signs of re-accelerating. This data gives the Federal Reserve more flexibility to address the clear slowdown in economic growth, which came in at just 1.4% for the second quarter.
Derivatives Market Strategy
In the derivatives market, this points toward positioning for lower interest rates and potentially higher stock prices. We should expect to see increased buying of call options on major stock indices like the S&P 500 for expirations after the September FOMC meeting. The expectation of lower borrowing costs makes equities more attractive.
This scenario could also lead to a decrease in market volatility as the Fed’s future path becomes more predictable. A clear dovish pivot typically calms investor uncertainty, which could put downward pressure on the VIX index. Therefore, traders might consider shorting volatility through VIX futures or put options in the weeks ahead.
We have seen this pattern before in financial history. Looking back at late 2023, markets began to rally strongly on the mere anticipation of a Fed pivot, well before the first rate cut of that cycle was delivered. The expectation of looser monetary policy is often as powerful as the action itself.
