Goldman Sachs states that the latest US inflation figures suggest that tariff-related price pressures are expected to be temporary. The measures have not yet caused substantial rises in consumer prices.
The bank anticipates that market focus will soon shift to employment data related to the Federal Reserve’s responsibilities. Weaker labour market statistics could strengthen the case for policy easing.
Goldman’s Rate Cut Suggestion
Goldman also notes that the Consumer Price Index report supports the idea of a September “insurance” rate cut. This would aim to protect the economy from potential downward risks.
Despite inflation continuing to rise, concerns about the job market are becoming more central to the Federal Reserve’s considerations.
The latest inflation numbers support our view that price pressures from recent tariffs will likely fade. This means market focus will probably shift away from inflation and toward the health of the job market. A weaker labor market could give the Federal Reserve the cover it needs to begin easing policy.
This view is gaining credibility as we look at the data from last month. The July 2025 jobs report showed the economy added only 155,000 jobs, missing expectations of 190,000, while the unemployment rate ticked up to 4.0%. This follows the June JOLTS report which showed job openings falling to their lowest level since early 2022, reinforcing the cooling labor market narrative.
Importance of Recent Economic Indicators
For derivative traders, this strengthens the case for positioning for a September “insurance” rate cut to protect the economy. The market is already reflecting this, with Fed funds futures now pricing in about a 70% chance of a 25 basis point cut at the September meeting. Traders should watch upcoming labor data closely, as any further weakness will likely solidify these expectations.
Given the uncertainty, equity options are becoming more interesting. The VIX, currently sitting around 16, could see a spike ahead of the next jobs report in early September and the subsequent Fed decision. Buying VIX calls or put options on the S&P 500 could serve as a valuable hedge against market jitters if the employment data comes in surprisingly weak.
We have seen this kind of proactive Fed policy before, which adds weight to the potential for a cut. This situation is reminiscent of the mid-1995 cycle, when the Fed cut rates as a preemptive measure to ensure a soft landing and prolong the economic expansion. That history suggests the coming move may be less about fighting a downturn and more about sustaining growth.
