Growth is slowing, but the economic fundamentals are still strong. It’s important to look at the full economic picture, not just a few indicators. Inflation is the main concern right now, along with employment rates. We expect inflation to remain high in the coming quarter and year, possibly due to tariffs. Decisions for the next policy meeting are not yet finalized. Economic risks appear balanced, and the current moderate policy is considered appropriate. In premarket trading, U.S. equities are performing well. The Dow Industrial Average is up by 150 points, the S&P has increased by 14.58 points, and the NASDAQ has climbed by 32.6 points. The Federal Reserve indicates that while the economy is cooling down, they are in no rush to lower interest rates. This cautious approach is leading to a slight relief rally in the stock market today, August 23, 2025, after a period of downturn. For derivatives traders, this means that selling off volatility may be premature since the Fed has not yet made up its mind. With the next Fed meeting in September still uncertain, implied volatility in index options is likely to stay high. The VIX has been just above 20 for the last two weeks, reflecting market uncertainty. This situation makes buying straddles on the SPX an appealing strategy, as they could yield profits from significant price movements in either direction once the Fed’s decision becomes clearer. Inflation remains the top concern. The latest CPI report from July 2025 shows inflation stubbornly at 3.8%. This is why interest rate futures do not anticipate rate cuts until deep into 2026. Traders should keep an eye on derivatives related to the Secured Overnight Financing Rate (SOFR) to assess changing expectations about Fed policies for the rest of the year. Additionally, the Fed is wary of employment risks. The latest jobs report indicates the unemployment rate has risen to 4.1%. This creates a limit on how high rates can go, likely keeping markets fluctuating within a certain range. This was evident in parts of 2023, suggesting that strategies like iron condors on major indices may work well. Tariffs are an important wildcard, especially since recent trade negotiations have stalled. This uncertainty could unexpectedly raise inflation and compel the Fed to act. Traders might consider buying puts on industrial or transport sector ETFs as an affordable way to hedge against a sudden breakdown in trade discussions.

here to set up a live account on VT Markets now