Insights 
VT 
As the FOMC meeting approaches, the Federal Reserve is expected to maintain current interest rates. Despite economic softening, conditions have not compelled a strong policy response, with price pressures, particularly PCE, remaining steady. The prospect of tariffs keeps Federal Reserve assessments cautious. Current market predictions place the likelihood of a rate change at around 2%.
President Trump has publicly expressed his dissatisfaction with the lack of rate cuts, recently tweeting that the Fed should lower rates due to perceived low inflation. While he has indicated no current plans to dismiss Chair Jerome Powell, further comments from Trump criticising Federal Reserve decisions are anticipated if rates remain unchanged. This situation may lead to a repetition of the ongoing public discourse between the two.
Interest Rates Expectations
In plain terms, the Federal Reserve isn’t expected to adjust interest rates anytime soon. Even though the overall economic activity has eased slightly, core inflation – particularly when measured by the preferred Personal Consumption Expenditures (PCE) index – hasn’t retreated enough to warrant a major change in stance. This leaves the central bank with little immediate reason to act.
Also keeping policymakers cautious are uncertainties around global trade. While it might have softened somewhat recently, the mere possibility of fresh tariffs still clouds the outlook. None of this is happening in isolation; it all feeds into a wider discussion about the appropriate pace and direction of monetary policy.
Trump’s vocal approach to central banking policy is certainly not new, though it remains outside the usual boundaries for a head of state. His latest remarks again challenge the Federal Reserve’s reluctance to deliver a cut. Although he has pulled back from any direct threats to remove Powell, the pattern of indirect pressure seems likely to continue, especially if the committee sticks to its current course. From a distance, this might look like just more bluster – but it can shape short-term sentiment in key markets nonetheless.
Market Implications
Now, in practical terms, those of us active in rates derivatives ought to refocus attention, not toward headline drama, but toward what’s actually being priced. The implied probability of a move is barely registering – under 3% depending on rounding – and volatility remains relatively contained. There’s been no spike in skew and no meaningful divergence in rate expectations across the curve. Short-term contracts suggest that a stable hold is not just expected but widely agreed upon. That gives options traders very little reason to pay up unless they see sharp movement elsewhere.
For us, this kind of disconnection between political rhetoric and institutional behaviour provides unusually fertile ground for tactical positioning. It’s clear that the rate path hasn’t adjusted in response to Tweets – not this time. The message from Powell and his committee hasn’t been shaken by jawboning, and the dot plots remain broadly supportive of patience. We’re now looking more at small reallocations along the belly of the curve, not full-blown directional risk.
So, then, it’s not about dramatic changes but measuring which parts are least aligned with policy inertia. If volatility picks up due to unexpected remarks or a sudden change in trade dialogue, the market will move fast – not because a shift is likely, but because pricing has left too small a margin for error. There are mispricings out there, though they’re narrow and transient.
In the coming fortnight, any response needs to be highly selective. It’s not a question of betting on a change, but of aligning positions with a forward guidance strategy that remains largely unchanged. That makes it more about relative value rather than broad curve reshaping. We’re paying very close attention to mid-tenor options and monitoring whether expectations six to nine months out begin to show any foundation weakening. Right now, though, there’s very little indication that the Fed’s core message has changed direction.
And until it does, most of what we’re doing involves leaning very slightly against overconfidence in the hold scenario, while recognising that the broader structure remains pretty tightly managed.
