Atlanta Fed President Rafael Bostic is discussing the economy. Even though many expect a rate cut in September, Fed members are wary due to the strong job market. Bostic points out that lower to middle-income consumers are feeling stressed, which is starting to impact higher-income groups. However, those with higher incomes seem to be doing well.

Current Economic Insights

Smaller businesses are facing more challenges than larger ones, and there’s a rise in credit card usage, showing how consumers are behaving. The Atlanta Fed’s GDPNow forecasts a 2.5% growth for the third quarter, with a revision due on Friday. The sticky-price consumer price index, which tracks items with slower price changes, increased by 4.6% annually in July, up from 4.3% in June. From last year, the index is up 3.4%. Excluding food and energy, the core sticky-price index rose 4.8% annually in July, with a 12-month increase of 3.4%. While the market is betting on a rate cut in September, there are hints of caution from the Fed. The main worry is persistent inflation, which jumped to a 4.6% annual rate in July. This indicates that underlying price pressures are hard to manage, suggesting the Fed might hold off. The weaker jobs report for July revealed only 155,000 payroll increases versus expected 190,000, boosting rate cut speculation. However, new Consumer Price Index data shows headline inflation at 3.3% year-over-year, slightly above predictions. This mix of slowing job growth and ongoing inflation leads to uncertainty that the market may be overlooking.

Investment Strategies Amid Economic Uncertainty

We’re noticing increased stress among consumers and small businesses, a vital sign for the economy’s future. Total household credit card debt just hit a record $1.25 trillion in Q2 2025, with delinquency rates rising to their highest since 2012. This growing reliance on credit indicates that consumer strength is weakening. Considering this situation, traders in derivatives might want to set up positions that could benefit if the Fed surprises everyone by keeping rates steady in September. This could include options on short-term interest rate futures linked to SOFR, which currently don’t factor in the risk of a hawkish pause. A cost-effective way to prepare for this is by buying out-of-the-money put options on December 2025 SOFR futures. If the Fed does not cut rates, we might see increased market volatility and a drop in stock prices. Traders could buy VIX call options, which are currently priced for low volatility, to take advantage of a potential market shock. Additionally, purchasing put options on major indices like the S&P 500 or Nasdaq 100 provides a direct way to bet on a market downturn. We’ve witnessed similar scenarios before, like in late 2018 when the Fed raised rates against market expectations, leading to a significant drop in equity prices. The present situation, with high persistent inflation and a Fed that says it can wait, reminds us of that time. This historical context suggests the risk of a hawkish surprise is greater than the market thinks. Create your live VT Markets account and start trading now.

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