Treasury Secretary Bessent’s Statements

Treasury Secretary Bessent expressed a wish for Fed nominee Miran’s confirmation before September’s meeting and suggested a 50 basis point rate cut. Miran noted minimal tariff-driven inflation, suggested disinflation as immigration policies change, and pushed for improved survey response rates.

Richmond Fed Pres. Barkin and Kansas City Fed Pres. Schmid gave comments on inflation and policy, with Barkin leaning hawkish on consumer spending resilience and Schmid advocating for retaining a modestly restrictive stance. Despite EJ Antoni’s call to suspend the monthly jobs report, the White House confirmed it will continue.

The budget deficit widened to $-291 billion, surpassing expectations, while July’s tariff revenue was $29.6 billion. Crude oil futures fell below the 100-hour moving average, and Bitcoin traded above $120,000, marking a near high for the day. The US dollar closed lower against major currencies, impacted by overall trading dynamics.

Market Strategies and Implications

Given today’s date of August 12, 2025, the market is aggressively pricing in a Federal Reserve rate cut for September. We see this reflected in the 90% probability assigned by traders, despite core inflation showing its largest gain in six months. This reminds us of the market action in mid-2019, when traders similarly front-ran the Fed’s eventual policy pivot by confidently betting on cuts.

With stock indexes reaching new all-time highs, we should consider buying call options to participate in further upside momentum. However, because Fed members Barkin and Schmid are signaling caution, there is a risk of a pullback. Given that the VIX index, a measure of expected volatility, is likely subdued near these market peaks, purchasing some out-of-the-money put options on the S&P 500 would be a relatively inexpensive way to hedge our long positions.

The US dollar is weakening across the board, which is a direct consequence of the market anticipating lower interest rates. We should view this as a clear trend to follow in the coming weeks. Using derivatives to short the dollar, for example, by buying call options on currency ETFs like FXE (for the euro) or FXY (for the yen), allows us to profit from this move.

The bond market is also sending a strong signal, with the yield curve steepening as short-term yields fall and long-term yields rise. This is a classic pattern we see just before the Fed begins an easing cycle. We can trade this directly through yield curve spread strategies, such as going long 2-year Treasury note futures while simultaneously shorting 10-year note futures.

We must pay close attention to the upcoming Jackson Hole economic symposium, which typically occurs in late August. This will be a critical event where Fed officials could either validate the market’s expectation for a cut or push back strongly against it. Historically, comments from this symposium can cause significant market volatility, so we should be prepared for sharp price swings around that time.

Falling crude oil prices, now trading below the key $64 level, provide another reason to believe headline inflation will remain under control. This supports the narrative for a rate cut and puts downward pressure on energy stocks. We can use put options on oil futures or energy sector ETFs to capitalize on this bearish trend.

Create your live VT Markets account and start trading now.