Chicago Federal Reserve Bank President Austan Goolsbee is cautious about supporting an interest rate cut in September. He noted that the Fed’s autumn meetings will be held in person and acknowledged mixed signals in the job market. While some data appears stable, there are concerns based on other information. Goolsbee emphasized that a rate cut might be necessary if the job market starts to weaken, but he is not sure if that trend has begun. He wants to see several months of positive inflation data before agreeing to a rate cut. Recent inflation figures have been mild, but there has been an increase in services inflation.

Tariffs And Economic Factors

He addressed the complexities of tariffs, especially those on semiconductors, stating that the effects are not just a one-time inflation surge. While economic factors might naturally push interest rates down, he highlighted that rates could be cut preemptively if inflation looks like it will hit 2%. Goolsbee, seen as one of the more cautious members of the Federal Open Market Committee (FOMC), is wary of a September rate cut. However, he mentioned that new data could change the decision before the meeting. Anticipation for the upcoming meeting is high. With even the more cautious voices on the FOMC showing hesitation about a September rate cut, uncertainty is clearly rising. The market has quickly adjusted expectations, with the chance of a September cut dropping from above 70% last month to around 45% now. This “live meeting” approach suggests that trading will be volatile in the coming weeks. In this unstable environment, buying options to prepare for price fluctuations is a smart move. We are considering VIX call options or long straddles on major indices like the SPX, which could benefit from the expected market volatility surrounding upcoming inflation and jobs reports. This tactic aligns with the Fed’s current uncertainty.

Higher For Longer View

The increase in services inflation, which reached a 4.1% annual rate in the July 2025 CPI report despite a decline in the overall number, supports a “higher for longer” view on interest rates. Therefore, we are looking to sell short-term interest rate futures, such as those linked to SOFR, in anticipation of the Fed keeping rates steady in September, which would benefit from any delays in a rate cut that the market had expected. Mixed signals in the labor market are also a risk for stocks. Although the July non-farm payroll report showed 210,000 new jobs, the unemployment rate rose to 4.2%, and initial jobless claims have been increasing for six straight weeks. Buying protective put options on the Nasdaq 100 (NDX) can provide a valuable hedge against a potential downturn if labor market weaknesses become clearer. We recall a similar situation in late 2023 when the market expected rate cuts for early 2024 that the Fed was not ready to implement. This led to a surge in bond yields and a volatile stock market as traders adjusted. This history suggests we should be cautious and not bet too heavily on an immediate policy change from the Fed. Create your live VT Markets account and start trading now.

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