Federal Reserve President Elizabeth Hammack pointed out that the recent government shutdown made it hard to assess inflation due to missing data. She’s relieved that government data is back, as it helps understand the economy better. The job market is showing signs of cooling, but inflation is still too high. Striking a balance in the Federal Reserve’s dual mandate is tricky, especially without comprehensive data.

Alternative Job Market Data

There are many alternative data sources for the job market, but analyzing them can be difficult. Hammack remains committed to the Fed’s goal of a 2% inflation rate and has noticed improvements in the labor economy. Currently, the Fed’s stance is neutral, but there is a desire for a slightly stricter policy. They will keep monitoring inflation and job stability, noting that private credit is too small to present major risks. When it comes to currency values, the US dollar has fluctuated against major currencies, gaining strength especially against the Yen. A table showing percentage changes against the Euro, Pound, Yen, Canadian Dollar, Australian Dollar, New Zealand Dollar, and Swiss Franc outlines these trends. As we navigate these predictions, we need to pay close attention to the complicated global financial landscape.

Federal Reserve Policy Rate

The Federal Reserve’s policy rate is between 5.00% and 5.25%. The comment that policy is “around neutral” but should be “a bit more restrictive” sends a clear hawkish message. This indicates that rate cuts might be longer off than the market expects, which could lower equity index futures and raise costs for long positions. The Fed is sticking to its 2% inflation target due to ongoing price pressures. Recently, the Consumer Price Index (CPI) for November 2025 was still high at 3.1%, supporting the tighter policy view. This persistence could make options betting on higher interest rates, like puts on Treasury bond futures, appealing. At the same time, the labor market is showing signs of slowing down. The last Nonfarm Payrolls report for November showed only 95,000 jobs added, below expectations, which indicates a softening job sector. This adds complexity to the Fed’s decisions and raises the chance of market volatility around future data releases. The tension between stubborn inflation and a softening labor market creates uncertainty, resulting in the VIX index trading at an elevated level, around 19.5 this week. We may want to consider strategies that take advantage of this volatility, like straddles on the S&P 500 before the next jobs report. With reliable government data returning, market reactions to surprises are likely to be rapid. A more restrictive Fed policy makes the US Dollar appealing compared to currencies with more lenient central banks. The dollar has already gained against the Japanese Yen today, benefiting from a significant interest rate gap. Derivative traders might look at options to capitalize on the continued rise of USD/JPY. We should remember the aggressive rate hikes that started in 2022, and the Fed seems cautious about easing too soon. All eyes will be on the upcoming Federal Open Market Committee (FOMC) meeting on December 18th. Expect Fed policy to remain highly sensitive to data, with a tendency to keep conditions tight until inflation shows a clear path back to 2%. Create your live VT Markets account and start trading now.

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