Monthly Inflation Trends

The July trimmed mean PCE from the Dallas Fed shows an annual rate of 1.9%, down from 3.4% last month. This measure helps us understand inflation in the US. Looking at different time periods, the 6-month annual rate decreased slightly to 2.6% from 2.8%. The 12-month annual rate stayed steady at 2.7%. The 1-month annual rate often varies, making it less reliable for identifying longer-term trends. The 6-month and 12-month rates give a clearer picture of inflation over time. The recent Dallas Fed Trimmed Mean PCE indicates a sharp drop to 1.9% this month, creating some excitement. However, the more stable 6-month and 12-month rates are still quite high at 2.6% and 2.7%, respectively. This suggests that the underlying inflation trend remains strong and above the Fed’s target. As a result, the CME FedWatch Tool shows that the chances of a rate hike in September have decreased from over 50% last week to about 25% today. This change is reflected in SOFR futures, which have risen. Still, the market does not anticipate any rate cuts until 2026, showing the persistence in core data.

Market Sentiments

The CBOE Volatility Index (VIX) has fallen below 15 following this news. However, implied volatility for options expiring after the upcoming Fed meeting in September remains high. This indicates a suitable environment for selling short-term options while being careful about longer-term market direction. Strategies like iron condors may work well if the market stays stable as it processes this mixed information. We should remember the lessons from 2023, when several “cooler” inflation reports turned out to be false signals, leading to a rise in prices again. The Fed is likely cautious about this, needing to see consistent trends over several months before making any changes. This context makes us hesitant to chase significant market moves just yet. All attention will now focus on the August jobs report, set for release next Friday, September 5th. A weak number for non-farm payrolls, perhaps below the 175,000 consensus estimate, would support the disinflation signal. On the other hand, a strong report could erase today’s cautious outlook and bring a rate hike back into consideration. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now