The world, as we know it, is experiencing a series of geopolitical and economic pressures, from military and tariff wars to cultural and socioeconomic challenges. As of September 2025, the Federal Reserve provided monetary relief to the U.S. financial market by announcing a 25-basis point rate cut. This is the first reduction in some time, at a moment where inflation and unemployment have risen. While short- and long-term yields have lowered considering slower growth prospects, this month's rate cut announcement signals a positive direction for inflation, but not quite a material reduction in borrowing costs. Equity markets and those sensitive to rates, such as tech and real estate, may gain momentum if this month's rate reduction results in additional reductions through 2026. Nonetheless, financial markets are closely monitoring U.S. federal policy considering the U.S. $34 trillion national debt.
Rate sensitive industries have taken the reigns, evidenced by increased demand for interest rate hedging via interest rate options in the form of caps and swaps, and sell side swap dealers with affiliate lenders view this model as a beneficial risk management opportunity outside of traditional credit support and that of master netting and close-out models. Additionally, the rise in technological advancements makes back-office reconciliation beyond that which is mandated by federal regulation, such as Dodd Frank in the United States and EMIR in Europe, far more streamlined, whereby one-stop shop financing with derivative wrappers, even across multi-jurisdictional tax structures and borders, is rising in popularity. In short, in a volatile rates market, over-the-counter derivatives may be utilized so floating rate financing takes on the characteristic of fixed financing, which permits budgeting, predictability, and transparency around buy-side growth and exit plans.
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