US President Trump has been critical of Fed Chair Powell. He claims Powell is late, angry, and unfit for the job, arguing that these issues cost the country trillions. Trump has also pointed out what he considers poor renovations management. Recently, the Federal Reserve did not announce a rate cut for September, leaving market expectations changed. Fed funds futures now show about a 37% chance of a rate cut at the next meeting, leading to a decline in market pricing.

Federal Reserve Stance

The Federal Reserve is sticking to its guns, making a September rate cut seem very unlikely. Markets reacted quickly, with Fed funds futures indicating less than a 40% chance of a cut at the next meeting. This hawkish stance comes amid strong political pressure on the Fed Chair for being too slow and too tight with policy. This firm stance from the Fed is understandable when we review the latest data. The June 2025 Consumer Price Index (CPI) report shows inflation is still high at 3.1%, far above the 2% target. Also, the labor market remains strong, with the economy adding 260,000 jobs last month and unemployment below 4%. For derivative traders, this clash between a data-driven Fed and political pressures creates a perfect storm for market volatility. The VIX, a measure of market fear, has jumped from around 13 to over 17 this week. Traders might consider strategies that benefit from larger price swings, such as buying straddles or strangles on major indices.

Historical Precedent and Future Speculation

We’ve seen this before, during the 2018-2019 period, when the Fed Chair faced similar public criticism for tightening policy. Eventually, the Fed shifted and began cutting rates in mid-2019, suggesting that political pressure can influence policy, despite claims of independence. This past experience means that even with the Fed’s current tough stance, we cannot completely discount a policy change later in the year if the economy weakens or pressure increases. Traders might look at longer-dated options, such as December 2025 or January 2026 interest rate futures contracts, to bet on a future dovish policy shift. These options are currently relatively cheap because the market is focused on the Fed’s short-term hawkishness. Create your live VT Markets account and start trading now.

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