Insights 
VT 
Minneapolis Fed President Kashkari expressed growing confidence that the impact of tariffs on inflation will be temporary. He mentioned uncertainty about how many more rate cuts are necessary to reach a neutral stance, noting that even if short-term rates are cut, it may not lead to a decrease in long-term rates.
He observed that essential components of inflation, such as housing and non-housing services, appear to be decreasing. Kashkari praised Powell for achieving a strong consensus within the Fed, stating that politics did not influence the Fed’s discussions recently.
Monitoring The Labour Market
Despite the labour market not being poor, Kashkari emphasised the need for the Fed to monitor it closely. The overall tone suggests possible additional rate cuts this year, fostering some confidence in that direction.
Recent comments suggest a growing belief that inflation from tariffs is a passing issue. This view strongly supports the market’s expectation for two more rate cuts before the year ends. Based on this, Fed funds futures are pricing an over 85% chance of a 25-basis-point cut at the November meeting.
This dovish stance is a green light for equity markets, which typically thrive on lower interest rates. We should consider buying call options on major indices like the S&P 500, or selling put spreads to collect premium on the expectation of limited downside. The VIX, currently sitting around 14, could drift lower as Fed policy becomes more predictable and accommodative.
The most interesting observation is the possibility that long-term rates won’t follow short-term rates down. This points directly to a yield curve steepening trade, where we would profit from the gap between 2-year and 10-year yields widening. A classic way to play this is by going long front-end rate futures while simultaneously shorting longer-duration Treasury futures.
Fed’s Confidence In Inflation Metrics
The Fed’s confidence comes from core inflation metrics that are finally cooling off, with the last Core PCE reading for August 2025 coming in at 2.6%. The labor market is also showing signs of softening, with job growth slowing to around 150,000 last month and unemployment ticking up to 4.1%. These figures give the Fed the room it needs to ease policy without worrying about overheating the economy.
We are seeing a playbook similar to the one from 2019, when the Fed pivoted from a hiking cycle to cutting rates amid global growth concerns. That “mid-cycle adjustment” provided a significant tailwind for risk assets through the end of that year. This historical precedent suggests a supportive environment for equities in the coming months.
