Business sentiment seems to be getting better in some areas, but hiring is not one of them. Recent reports show no signs that businesses plan to lay off employees. Consumer data from July, based on credit card spending and other indicators, suggests potential growth.

Challenges Faced By Manufacturers

Manufacturers are still struggling with supply chain issues worsened by tariffs. Many consumers are ready to cut back on spending, making companies cautious about raising prices to cover tariff costs. The Federal Reserve is grappling with policies that feel restrictive when compared to neutral rates. Weak job data from August may be linked to changes in immigration patterns, not layoffs. Tariff-driven inflation complicates policy decisions. Despite market expectations for a 25 basis point rate cut in September, Fed officials are sticking to a neutral policy stance. Fed Chair Jerome Powell will speak at the Jackson Hole Economic Policy Symposium on August 22, 2025, and is expected to maintain this approach, stressing the need for more data to understand the economic landscape. The market is eager to see if Powell hints at any changes or sticks with his current plan. The Fed is sending mixed signals, leading to uncertainty. While the business outlook has improved, this hasn’t translated into new job creation, as evidenced by the July jobs report on August 1, 2025, which showed a modest gain of 155,000 jobs. This cautious approach to hiring, despite no major layoffs, indicates that companies are in a wait-and-see mode. However, recent data suggests consumers are stronger than expected, with July retail sales up by 0.6% month-over-month. This resilience, together with tariffs making it hard for core inflation to dip below 3.4%, gives the Fed reason to pause. A decision to cut interest rates has become more complicated. Despite the Fed’s cautious messages, the market is aggressively anticipating a rate cut in September. Data from the CME FedWatch Tool shows a 65% chance of a 25-basis-point reduction. This difference between the Fed’s communication and the market’s expectations could lead to volatility.

Focus On Fed’s Upcoming Speech

All eyes are on Fed Chair Powell’s speech at the Jackson Hole symposium next Friday, August 22. This event will likely drive market movements in the coming weeks. Until he speaks, forming a strong opinion on interest rates or stock indices is risky. For derivative traders, this setup suggests focusing on volatility. Strategies like buying straddles or strangles on indices or currency pairs could profit from significant price movements in either direction following the speech. This rise in implied volatility before a key Fed speech echoes patterns from 2019, when the Fed began its rate-cutting cycle. After Powell speaks, the picture will become clearer. A clear signal for a rate cut would support trades benefitting from lower rates, while a reaffirmation of a data-driven pause would require a more cautious approach. The key is to wait for that signal before taking on substantial directional risk. Create your live VT Markets account and start trading now.

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