Private Credit Market and Economic Growth

The private credit market needs close attention, especially regarding its fit for a 401K. Kashkari pointed out that the US economy is still strong, and immigration could help boost economic growth. He emphasized that to address the housing affordability crisis, we need to increase housing supply instead of just cutting interest rates. There is a greater chance of unexpected changes in the job market than rises in inflation. Additionally, extended government shutdowns hurt confidence in evaluating the economy. Currently, the US dollar Index (DXY) is around 98.27, which is a decrease of 0.40% today. The Federal Reserve’s meetings and its policies—like Quantitative Easing (QE) and Quantitative Tightening (QT)—influence the US Dollar’s strength; QE generally weakens it while QT strengthens it. We are facing a lot of uncertainty in the coming weeks. The ongoing federal government shutdown that started on October 1st means we won’t have access to important data like inflation and job reports. This makes it hard for us and the Fed to understand the direction of the economy.

Economic Strategy Amid Uncertainty

The job market is clearly slowing down, increasing the chances of unexpected negative outcomes. The latest non-farm payroll report from September indicated a gain of only 95,000 jobs, a significant drop from earlier this year. This weakness makes the Federal Reserve cautious about tightening further. Even with a slowing labor market, we still have to deal with ongoing inflation. The last core CPI reading in September was 3.8%, which is much higher than the Fed’s target. This puts policymakers in a tough spot as they worry about inflation affecting prices of goods. Due to this uncertainty, trading for increased volatility might be a smart choice. The CBOE Volatility Index (VIX) has risen from 14 to over 19 in the last two weeks, showing growing concern. Options strategies that profit from price changes rather than a specific direction could work well. The US Dollar Index has dropped from nearly 101 three weeks ago to about 98.27 now, reflecting this cautious shift. As long as the shutdown continues and the labor market remains weak, the dollar is likely to face more downward pressure. Considering puts on the dollar or calls on currency pairs like EUR/USD may be worthwhile. We’ve seen similar scenarios during the government shutdown from late 2018 to early 2019. That time of uncertainty and market stress led to the Fed pausing its rate hikes and eventually cutting them later that year. History suggests that prolonged political gridlock often pushes the Fed to adopt a more cautious approach. Create your live VT Markets account and start trading now.

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