Scott Bessent, the US Treasury Secretary, shared important thoughts on today’s economic challenges. He hopes the Federal Reserve will align better with the economy but worries they may be falling behind. Bessent predicts inflation could start to go down and noted that the long-term yield curve remains stable.

US Economic Strategies And Predictions

Bessent talked about Miran returning to the Council of Economic Advisers (CEA) and praised Bullard for understanding the Federal Reserve. On the topic of tariffs, he seemed confident that the Supreme Court would back the administration’s decisions. He mentioned that there are multiple sources that could be tapped for this issue and suggested tariffs could help reduce the national debt. When discussing China, Bessent emphasized respectful discussions and acknowledged the country’s long list of demands. He pointed out that Trump seems open to letting TikTok’s situation resolve on its own. Bessent expressed disappointment regarding Nvidia in China but expected a deal after the upcoming Friday meeting between Trump and Xi. He feels that discussions are becoming more productive, with the next China meeting scheduled for Frankfurt. The administration believes that the Fed is lagging, which might lead to higher interest rates. The latest Consumer Price Index for August 2025 shows inflation sticking at 4.1%, well above the 2% target, putting pressure on policymakers. Traders should consider getting ready for further rate hikes by looking at short-term interest rate futures that expire in early 2026. This pressure is evident in the bond market, where the yield curve is inverted. This morning, the 2-year Treasury yield was at 5.10%, much higher than the 10-year yield of 4.50%. This inversion indicates market worry over near-term rate policies and a possible economic slowdown—something we’ve not seen this dramatically since the rate hikes in 2023.

Market Volatility And Interest Rates

With the administration focusing on making things affordable and lowering inflation, we expect more volatility around upcoming Fed meetings. The current Fed funds rate of 5.75% might not be the peak if inflation does not cool down soon. Options strategies that thrive on sharp movements, like straddles on the SPDR S&P 500 ETF (SPY), could be useful in this uncertain environment. The most pressing event risk is the planned conversation between Trump and Xi this Friday. The market is pricing in a chance of a deal, but we should also be ready for the talks to “go dark,” which could lead to a significant sell-off. We remember how quickly the market reacted to headlines during the 2018-2019 trade disputes. To navigate this uncertain situation, traders should consider options on assets related to China and the tech sector. Call options on the iShares China Large-Cap ETF (FXI) could perform well if a deal occurs. Conversely, put options would guard against a negative outcome from the talks. Bessent’s disappointment regarding Nvidia highlights ongoing tensions in the semiconductor sector, which could lead to more volatility. The plan to use tariffs to reduce national debt adds another layer of complexity. This policy may raise consumer goods prices and create challenges for industries reliant on imports. We should monitor sectors like retail and manufacturing for signs of margin pressure if new tariff measures are implemented. Create your live VT Markets account and start trading now.

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