US initial jobless claims were reported at 231,000, which is better than the expected 240,000. The previous week’s claims were revised from 263,000 to 264,000. Continuing claims stood at 1,920,000, also below the predicted 1,950,000. The earlier figure was adjusted from 1,939,000 to 1,927,000. These numbers indicate improvement, as they are better than expected. Last week’s increase in initial claims was affected by fraudulent filings in Texas. The revision of prior claims showed a small increase. Overall, jobless claims remain stable, and continuing claims have improved.

Strong Labor Market Signs

This week’s decline in jobless claims to 231K shows that the labor market is strong, especially after we discount last week’s spike due to a reporting error in Texas. Continuing claims are also decreasing, which is a positive sign for the economy. This strength makes it harder for the Federal Reserve to justify lowering interest rates anytime soon. With the August 2025 CPI report showing inflation at 3.4%, this strong jobs data supports the Fed’s decision to maintain higher rates for an extended period. The market had been anticipating a possible rate cut before the year ends, but that now looks unlikely. We should expect the Fed to stay hawkish in its meeting next week.

Market Implications

For interest rate derivatives, this indicates that options betting on rate cuts are likely overpriced. We should think about selling calls on December 2025 and March 2026 SOFR futures because the chance of a cut during that period has decreased. This approach profits if the market shifts to a “higher for longer” reality. In equity markets, this positive economic news may actually be negative for stocks, similar to what we saw during the 2023 rate hikes. With the S&P 500 up nearly 15% year-to-date in 2025, a hawkish Fed might trigger a market pullback. Buying puts or put spreads on the SPY for October expiration could be a smart way to protect against this risk. The tension between a strong economy and a tight Fed is likely to increase market volatility. The VIX is currently near a low of 14, making it relatively inexpensive to buy protection against a spike in volatility. We might consider buying VIX calls ahead of next week’s FOMC announcement. Create your live VT Markets account and start trading now.

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