Chicago Fed President Austin Goolsbee has expressed his thoughts just before the quiet period leading up to the FOMC rate decision on July 30. He noted that recent Consumer Price Index (CPI) data shows tariffs are driving up goods inflation. Goolsbee also raised concerns about the independence of central banks. While he suggested that interest rates could drop significantly over the next year, he did not indicate any immediate plans for rate cuts.

Market Interpretations and Outlook

We see Goolsbee’s comments as a sign of a cautious long-term strategy, but also a warning for the short term. His worries about tariffs affecting goods inflation introduce some near-term risks. This comes even as the latest June CPI showed a decline in the annual rate to 3.0%. The contrast between his cautious outlook and the recent data creates uncertainty, which can lead to trading opportunities. With the Federal Reserve’s quiet period lasting until the July 30 decision, we see potential in the options market. The CBOE Volatility Index (VIX) is currently near multi-year lows, around the 12-13 range, making options relatively inexpensive. Thus, strategies like buying straddles or strangles on major indices could be profitable, as they react positively to significant price shifts in either direction after the announcement. The derivatives market is leaning toward eventual easing, aligning with Goolsbee’s comments on rates decreasing. Data from the CME FedWatch Tool indicates traders see over a 60% chance of a rate cut by the September meeting, although the likelihood of a cut in July remains low. Therefore, it’s crucial to closely monitor the upcoming Personal Consumption Expenditures (PCE) inflation data; a weak result could quickly boost September expectations.

Historical Parallels and Future Expectations

This situation resembles the Fed’s pivot in mid-2019 when officials hinted at future cuts but awaited several months of data before taking action. At that time, markets experienced increased volatility with each major economic report. We anticipate a similar trend now and will be ready to respond to the market’s reaction to upcoming jobs and inflation data in the next few weeks. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now