Volatility Expected as Fed Prepares September Rate Cut, VIX Shows

VIX Futures Signal Potential Market Volatility After September Fed Rate Cut

October VIX futures are trading at a notable premium to September contracts, suggesting heightened market turbulence may follow the Federal Reserve’s expected rate cut on Sept. 17.

The VIX, often called Wall Street’s “fear gauge,” measures anticipated 30-day volatility in the S&P 500 through options pricing. A higher VIX indicates growing investor uncertainty. Currently, the spread between October and September VIX futures has widened to 2.2%—an unusually high level historically—while the September front-month contract trades only slightly above the cash index.

“Cash is fair compared to September… but September is extremely low relative to October futures,” said Greg Magadini, director of derivatives at Amberdata. This suggests traders are underpricing near-term risk ahead of the Fed’s decision.

Market participants expect the Fed to cut its target rate by at least 25 basis points, with some anticipating a 50-point reduction, according to CME’s FedWatch. Despite this, October futures indicate volatility could spike after the decision, once rate cuts are priced in.

Historically, the VIX moves inversely to stocks, rising during market stress and falling during rallies. A post-Fed volatility surge could coincide with downward pressure on equities.

Bitcoin (BTC) is closely tied to U.S. equity sentiment, meaning a potential volatility spike could also impact crypto markets. Since November, Bitcoin’s spot price has exhibited negative correlation with its 30-day implied volatility, and BVIV and DVOL indices have recently reached record-high correlations with the VIX, underscoring crypto’s growing alignment with broader market risk trends.