The labor market is slowing down but remains strong in certain areas. Although there are signs of a slowdown, businesses are not close to making major layoffs. The latest jobs data would not have changed the Federal Open Market Committee’s recent choice. The risks between employment and inflation are changing, and this could lead to shifts in employment focus.

Tariff Impacts on Economic Conditions

Right now, the risk of inflation is seen as greater than the risk of job loss. The situation is complicated, with challenges on both sides of the Federal Reserve’s goals. Tariffs are acting unpredictably, making it harder to predict inflation and other economic factors. If tariffs work as intended, their effects will be significant. Consumers have been thinking about tariffs for a long time. It will take time for companies to adjust their prices to account for these changes. The current policy is being actively discussed, with expectations of one interest rate cut by the end of the year. We need to monitor how changing data could impact future decisions. With new information, reevaluation of current strategies is necessary. We are in a tough situation where risks exist on both sides of the Fed’s mission. While the labor market is clearly slowing, inflation is still a bigger concern. This fuels ongoing discussions within the Fed about how strict their policies should be. The jobs report from August 1st illustrates this tension, showing a gain of 190,000 jobs. However, revisions to data from May and June show a loss of 75,000 jobs. With the latest core PCE inflation data from June still at 2.8%, we are above the Fed’s target. This combination of data suggests that the Fed is likely to keep rates steady for now.

Trading in Times of Uncertainty

This uncertainty means we should think about trading around volatility. The CBOE Volatility Index, known as the VIX, has been higher than usual, recently around 18, which reflects market tension. Buying options straddles on equity indexes or interest rate futures before the next CPI or jobs report could be a smart way to prepare for possible big market movements. While one rate cut is expected this year, the timing is unclear. We should watch for any worsening in job data, such as weekly jobless claims going above 300,000, as a potential trigger for the Fed to act. This makes options on SOFR futures for the fourth quarter of 2025 an interesting opportunity in anticipation of a possible cut. The ongoing risk from tariffs adds more complexity that we must consider. We saw a similar situation in 2018 and 2019 when trade tensions complicated the Fed’s choices and led to a policy change. If these new tariffs stick around, they may raise prices and push the Fed to delay any interest rate cuts, even if the job market weakens. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now