Beth Hammack, President of the Federal Reserve Bank of Cleveland, told CNBC that the main data to watch is how high energy prices rise and how long they remain high. She said higher energy prices could push up inflation and also weigh on economic growth.
Hammack said interest rates are in a good place, with a baseline of holding steady for a while. She added that risks for monetary policy run in both directions, meaning rates could move either way.
Market Volatility And Two Sided Policy Risk
Hammack said the job market is reasonably in balance and is not a source of inflationary pressure. She also said inflation expectations appear reasonably well contained.
Hammack said the Fed has been missing its inflation target for five years and that consumers have faced an extended period of elevated inflation. She said the Fed is still persistently missing the inflation target.
She said supply shocks are difficult for monetary policy and that it is a tough time for Fed decision-making. She said it is not clear what artificial intelligence will do to the economy.
Hammack said Fed independence is really important and that, amid threats to the Fed, the focus remains on doing its job. She also mentioned further debates on the balance sheet, noting that reserve demand is key to balance sheet size and that managing it involves a balancing act.
Positioning For Energy Rates And Growth
The primary signal we are getting is that uncertainty is high, which often leads to an increase in market volatility. With monetary policy risks pointing in both directions, we should anticipate choppy price action in the coming weeks. This suggests considering strategies that profit from price movement itself, such as buying VIX options or using straddles on major indices.
Energy is flagged as the most important variable, creating a classic conflict between inflation and slowing growth. With recent reports from the EIA showing WTI crude prices pushing towards $95 per barrel, a level not seen since late 2024, the risk is tangible. We should use options on energy futures or ETFs to position for either a sustained breakout on supply concerns or a sharp reversal if demand destruction fears take hold.
The market seems to have priced in the Fed staying on hold for a while, just as they did for much of 2025 before finally making cuts. With the Fed Funds Rate currently at 4.25%, any data that challenges this “on hold” narrative could cause a significant repricing in fixed-income markets. Traders should look at options on Treasury bond ETFs to position for a surprise shift away from this baseline expectation.
There is a clear warning that high energy costs could weigh on economic growth. This points towards a defensive posture in equities, especially after the strong market run-up we saw at the beginning of this year. We can use derivatives to hedge long portfolios, perhaps by buying puts on consumer discretionary and technology sectors that are more sensitive to a slowdown.
We must pay close attention to the next major economic data releases. The last CPI report for March 2026 showed inflation is still stubbornly hovering at 2.9%, well above the Fed’s target, while the jobs market remains balanced with unemployment at 4.1%. Given this backdrop, any deviation in the upcoming reports could trigger an outsized market reaction, making short-dated options a useful tool to trade around these events.
