Upcoming Speech
Regarding Fed Chair Powell’s upcoming speech, Morgan Stanley anticipates a tone similar to that of the Jackson Hole meeting. Powell is expected to discuss the downside risks to the labour market while reiterating a data-dependent approach. We are looking at a likely 25 basis point rate cut from the Fed tomorrow, marking a shift toward gradual easing. The market has largely priced this in, so the immediate move itself is not the main event. A lone call for a more aggressive 50 basis point cut is expected to be a dissenting voice, not the guiding direction for policy. This measured approach has historical precedent, reminding us of the Fed’s actions in 2019 when it also began a cycle of 25 basis point cuts following a period of restrictive policy. The current labor market data supports this cautious path; the latest August report showed job growth slowing to a moderate 165,000 and unemployment holding at 4.1%, which indicates softening but not a collapse. This gives the Fed room to move deliberately rather than being forced into a larger, more reactive cut.Market Expectations
For derivative traders, this means the real market-moving information will come from the forward guidance in the dot plot and Chair Powell’s press conference. Given the high certainty of a 25 basis point cut, front-end volatility may be expensive, offering little value. The focus should be on how the projections for the two cuts in 2025 and two in 2026 are presented. The expectation is for a series of consecutive cuts through January 2026, creating a clear downward trajectory for short-term rates. This suggests that positioning in interest rate futures, such as the December 2025 and March 2026 SOFR contracts, could be advantageous to capture this anticipated easing cycle. Any hawkish deviation from this path in Powell’s commentary would present a significant counter-signal. The primary risks are a surprise on either side of the expected 25 basis point move. A decision to hold rates steady would trigger a sharp rise in short-term yields, while an unexpected 50 basis point cut would signal deeper concern about the economy and accelerate the rally in bonds. Hedging these tail risks with out-of-the-money options could prove to be a sensible strategy leading into the announcement.
เริ่มซื้อขายทันที – คลิกที่นี่ เพื่อสร้างบัญชีจริงของ VT Markets
