The President of the Atlanta Federal Reserve, Rafael Bostic, expects the economy to keep slowing down. There is increasing uncertainty about how this will affect jobs and inflation. Companies are holding back on hiring, and price increases are likely to continue for the next six to twelve months, putting pressure on the Federal Reserve. Policymakers are unsure if tariffs will lead to temporary or long-lasting price changes. The long-term nature of tariffs makes it tough to assess their effects. Businesses are trying different ways to adjust prices and may keep doing this into next year, as the economy’s fundamentals stay strong.

Impact Of Lower Income

Lower-income consumers are feeling more strain as the savings built up during the pandemic are running out. Still, the job market in the Southeast has not seen a major slowdown. The July jobs report has prompted a reevaluation of how well the Federal Reserve’s employment goals are being met. Bostic notes that tariffs, designed for structural change, may have long-term effects. The federal debt could impact liquidity and requires the Federal Reserve’s attention. Even with significant reductions in the Fed’s balance sheet, one rate cut for this year seems fitting, depending on future data. The risks in the labor market are higher than expected, although price pressures might ease by mid to late next year. There is a clear split at the Federal Reserve between officials who are worried about job losses and those who are focused on inflation. This division leads to uncertainty about the outcomes of the upcoming September meeting. Traders should prepare for increased volatility as a result. The July jobs report showed only 95,000 jobs added, far below the expected 180,000, which has clearly unsettled policymakers. This raises concerns that the labor market might be weaker than initially thought, giving more support to those at the Fed who want to cut rates sooner.

Persistent Price Pressures

At the same time, we are experiencing ongoing price pressures from the new broad tariffs that began rolling out in the second quarter of 2025. The latest Core PCE inflation rate remains high at 2.8%, significantly above the Fed’s target. This keeps officials reluctant to ignore inflation risks or commit to a rate cut. Given this uncertainty, traders should look at strategies that could profit from a significant price movement in either direction. Buying straddles or strangles on major indices like the S&P 500 may be a smart choice, allowing for gains whether the market rises sharply on a dovish surprise or declines on a hawkish one. In the rates market, there are opportunities due to the gap between short-term and long-term expectations. The Fed’s division could cause volatility in short-term interest rate futures linked to the SOFR. If inflation fears keep the Fed from acting while the economy slows, we may see the yield curve continue to flatten. We can learn from the trade disputes of the late 2010s, which showed how quickly the Fed can shift from raising to cutting rates as trade uncertainties impact business investment and growth. This past suggests we should not underestimate how swiftly the Fed’s stance can change. The CBOE Volatility Index, or VIX, has been rising, recently hovering around 19, signaling confusion in policy. We believe buying VIX futures or call options could be an effective way to prepare for the expected turbulence ahead of the September meeting. This is a straightforward bet on the uncertainty itself. Create your live VT Markets account and start trading now.

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