Federal Reserve Vice Chair Michelle Bowman recently spoke at the New England Economic Forum. She raised worries about the weak job market and suggested that the Fed should still be ready to cut interest rates, as the risks to jobs are greater than concerns about inflation. Currently, monetary policy is somewhat restrictive, but inflation is becoming less of a problem as tariffs decrease. The Fed should look ahead and focus on strengthening the job market, expecting solid economic growth, lower inflation, and stable employment.

Fed’s Progress on Inflation

The Fed has made significant strides in reducing inflation and has achieved wage growth aligned with its 2% inflation goal. While the US economy remains strong, there is a risk of job losses unless demand improves. The US Dollar had mixed performance against major currencies; it was strong against the Australian Dollar but weaker against the Japanese Yen. A heat map illustrates percentage changes among currencies, which should be interpreted carefully based on chosen base and quote currencies. Now, the Federal Reserve is prioritizing the fragile job market over inflation. This is a notable change, indicating that interest rate cuts are more likely than a pause. Strategies should adapt based on recent data, which showed that the December 2025 jobs report added fewer jobs than expected—only 155,000—while the unemployment rate rose to 4.1% in the last quarter of last year.

Future Economic Strategy

With this new focus on job support, the cycle of rate cuts from the second half of 2025 might continue. After the Fed cut rates three times last year, many expected them to stabilize, but Bowman’s comments suggest otherwise. Traders should be cautious about expecting a strict Fed and instead prepare for a policy that prioritizes economic growth over lingering inflation issues. For foreign exchange traders, this more dovish approach will likely weaken the US Dollar. A central bank inclined to cut rates typically sees its currency weaken. Options strategies betting against the dollar, particularly against currencies with more hawkish central banks, could be more profitable in the coming weeks. For derivative traders, this situation leads to rising uncertainty and potential volatility. The emphasis on a weak labor market means upcoming reports, like weekly jobless claims and the next Non-Farm Payrolls report, could lead to significant market movements. It’s expected that the VIX index, which remained low for much of late 2025, will respond more to signs of economic weakness. The reason for this shift in policy is the progress made on inflation. The latest Core PCE inflation rate for November 2025 was 2.6%, significantly lower than the highs of 2024 and closer to the 2% target. This success allows the Fed to focus on protecting the job market from a potential downturn. Create your live VT Markets account and start trading now.

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