The effects of tariffs are still unclear. It might take months or even a few quarters to fully understand their economic impact. Because of this uncertainty, the Federal Reserve might want to hold off on making any policy changes. They need to see how tariffs influence inflation and economic growth. Businesses in the Southeast are reacting differently to the tariffs. Some are passing on the increased costs to consumers, while others are absorbing these costs by lowering their profit margins. It’s too early to tell if these tariffs will negatively affect consumer demand or cause inflation to rise again.

Cautious Stance On Rate Cuts

There is a careful approach toward rate cuts. Bostic and other Fed officials are skeptical that the current situation calls for any action at the upcoming meeting on July 29–30. The high inflation seen in the early 2020s reminds them to be cautious before deciding to cut rates. Bostic highlighted the need to protect the Federal Reserve’s independence, even amid outside pressure. He insisted that the Fed should focus on long-term economic stability, even if it means making unpopular choices. From Bostic’s comments, we think a key takeaway for traders is to expect more market volatility. His uncertainty about tariff impacts creates risks for the economy, which could lead to sudden market changes. We see this as a chance to set up trades that benefit from movement, not just a specific direction. This view is backed by mixed economic data. The June 2024 Consumer Price Index showed inflation slowing to 3.0%, while the University of Michigan’s consumer sentiment index recently dropped to a seven-month low. This mismatch between lower inflation and declining consumer confidence makes future market reactions hard to predict.

Upcoming July Meeting Strategy

With the upcoming July meeting in mind, we see a clear short-term opportunity. According to the CME FedWatch Tool, there’s less than a 10% chance of a rate cut. This makes options betting on such an outcome cheap to sell. This strategy lets us profit from the market’s belief that the central bank will keep rates unchanged. For the longer term, we’re looking for strategies that benefit from significant price swings in either direction as the impact of tariffs unfolds. The trade dispute of 2018-2019 caused the CBOE Volatility Index (VIX) to rise above 30 multiple times, starting from the low teens. We are considering buying long-dated strangles on bond ETFs because yields could either rise due to inflation or fall due to a slowdown in growth. His focus on caution and data stresses the need to be quick around important economic updates. The market’s sharp rise after the last CPI report shows how sensitive prices are to single data points right now. Therefore, we plan to use short-dated options to trade the volatility around the upcoming employment and inflation reports. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now