Neel Kashkari, the President of the Federal Reserve Bank of Minneapolis, talked about how the Trump administration affected the central bank. He mentioned this is mainly a monetary policy issue and suggested keeping interest rates steady this month. This is because inflation is still high and might stay above the target for two to three years. The Federal Reserve’s main goal is to achieve price stability and full employment. To do this, it uses interest rates. Raising interest rates makes borrowing more expensive, which strengthens the US Dollar. Lowering rates weakens the currency.

Quantitative Easing And Tightening

Quantitative Easing (QE) is a method used during financial crises to boost credit flow, which often weakens the US Dollar. On the other hand, Quantitative Tightening (QT) strengthens the currency by reversing QE actions and not reinvesting in bonds. The Federal Reserve holds eight meetings each year to discuss monetary policy. The Federal Open Market Committee (FOMC) assesses the economy during these meetings, which include twelve Fed officials, including members of the Board of Governors and regional Reserve Bank presidents. With officials like Neel Kashkari indicating steady interest rates, it seems unlikely that rates will be cut soon. The economy is strong, making it difficult for the Fed to lower rates. This suggests borrowing costs will stay high in the near future. Recent economic data backs this up. There were 210,000 jobs added in December 2025, according to the last Non-Farm Payrolls report. The Consumer Price Index (CPI) is at 3.8%, well above the Fed’s 2% target. With these numbers, we shouldn’t expect any changes in the Fed’s policy at their upcoming meeting.

The Impact Of Political Pressure

Despite high interest rates, the US Dollar is weakening because of worries about the central bank’s independence. This political pressure is causing traditional monetary policy signals to not work as they normally would. Traders are now factoring in risks related to the dollar, leading them to invest in other assets. For derivative traders, this situation suggests buying volatility. With the VIX, a measure of market fear, recently reaching 25, options are becoming more important for managing uncertainty. Considering long positions in options on currency pairs like GBP/USD or key commodities could help hedge against unexpected price swings. The shift away from the dollar is benefiting precious metals, as they are seen as a safe haven from inflation and political issues. Gold has recently reached $4,600, a significant rise similar to what we saw during the high-inflation year of 2023. Using call options or futures on gold and silver could be a good strategy to take advantage of this trend. Looking back to 2025, many traders expected the Fed to change its stance, which didn’t happen, causing major losses for those betting on rate cuts. The current situation feels similar, but now it comes with more political risks affecting the dollar. This suggests the need for strategies that don’t rely solely on the Fed’s next decisions. In the coming weeks, focus will shift to the next FOMC meeting and upcoming inflation data. Derivative strategies that profit from large price swings, regardless of direction, like straddles on major currency ETFs, could be wise. It’s important to prepare for ongoing uncertainty rather than predict a specific outcome. Create your live VT Markets account and start trading now.

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