Federal Reserve Governor Christopher Waller mentioned that the Fed is not in a hurry to decrease interest rates. The job market is weak and payroll growth is not strong, although cutting rates has helped. Waller predicts that 2026 could bring better economic conditions. Although inflation is still above the target, it is expected to decline in the coming months, while expectations remain stable.

Artificial Intelligence Concerns

Waller shared his doubts about how AI will affect jobs and dismissed the idea of inflation speeding up again. The Fed believes the job market is stable and can proceed carefully without taking drastic actions. Inflation is forecasted to fall, but it’s unclear how tariffs will affect job market weakness. Waller thinks it’s fine for the Fed and the administration to work together. The Fed might lower interest rates if inflation shows signs of moderating, but new asset purchases by the Fed are not seen as a stimulus. Waller’s comments did not impact the markets much; the US Dollar Index rose by 0.3% to 98.50, according to FXStreet Fed Speech Tracker. The Federal Reserve shapes US monetary policy to achieve price stability and full employment. It often adjusts interest rates to influence the economy and meets eight times a year to make these decisions. Quantitative easing (QE) and quantitative tightening (QT) are tools the Fed uses to manage the value of the USD in different economic situations.

Market Uncertainty Ahead

We are receiving mixed signals from the Federal Reserve, indicating a time of market uncertainty. The key message is there’s “no rush” to cut interest rates, but the weak job market usually calls for easier policies. This suggests we should prepare for unpredictable trading in the coming weeks instead of a clear trend. Historically, the Fed has been slow to respond, offering only a few rate cuts in 2025 despite clear signs that the economy was cooling. Waller’s remarks indicate this cautious approach will likely continue, so we expect the futures market to adjust expectations for aggressive cuts in early 2026. Consequently, yields on government bonds may not drop as quickly as many had hoped. For equity derivatives, this situation is favorable for strategies that thrive on low volatility, such as selling strangles on major indexes. With unemployment rising to about 4.4% this year and nonfarm payrolls averaging a weak 75,000, expectations for corporate earnings are low, limiting stock market gains. However, the potential for future rate cuts provides a safety net, stabilizing the markets. In currency markets, the US Dollar is gaining temporary strength because it is expected that US rates will stay higher longer than in other major economies. The Dollar Index’s position at 98.50 reflects this, but we view it as a short-term reaction. The ongoing weakness in the American job market will likely put pressure on the dollar as 2026 approaches. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now