Hammack from the Federal Reserve showed disappointment with the recent jobs report but still believes the labor market is healthy. He expects the job market might weaken as we move toward the end of the year. Hammack pointed out that inflation concerns are currently more pressing for the Fed than employment issues. The rising costs are making it tough for businesses, and they may have to raise prices since they can no longer absorb those costs.

Current Monetary Policy

He mentioned that the current monetary policy is somewhat restrictive because the economy is close to its long-term neutral rate. Still, the Fed is open to new information that could influence future policies. Before the Fed’s next meeting, Hammack will review another jobs report and two more inflation reports. He finds this time challenging for setting monetary policy, demonstrating strong respect for Fed Chair Powell and emphasizing the importance of upcoming data. Meanwhile, the NASDAQ index dropped by 288 points, indicating market worries. Businesses are facing a lot of uncertainty in this economy. The jobs report for July 2025 was disappointing, with only 165,000 new jobs created, while forecasts were around 200,000. However, wage growth was unexpectedly strong at 0.5% for the month, keeping inflation concerns at the forefront. This conflicting data caused the NASDAQ to fall over 1.5% today as the market reacted.

Inflation Concerns

The Federal Reserve is more focused on the ongoing inflation pressure than on a slight softening in the job market. Rising prices are seen as the more pressing economic threat right now. This suggests the Fed will continue its hawkish approach, prioritizing inflation control over fears of an economic slowdown. The main concern is that businesses facing high uncertainty can’t absorb rising costs and will need to pass them on to consumers. Early signs of this appeared in the June 2025 Consumer Price Index (CPI) report, which exceeded expectations. This trend may push inflation higher as we head into the end of the year. For derivative traders, this situation suggests increased market volatility in the coming weeks. With the Fed stating it is highly focused on data, the two upcoming inflation reports and the next jobs report could significantly impact the market. Strategies that benefit from price swings, like buying VIX calls or creating straddles on major indexes, should be considered. Given the emphasis on persistent inflation, it appears that interest rates will stay high longer than many anticipated. This scenario mirrors the market conditions of 2023, when high rates limited growth potential and affected technology stock valuations. Thus, puts on rate-sensitive sectors or unprofitable tech stock baskets may provide valuable protection. The policy is described as “a little restrictive,” indicating the Fed feels it needs to take further action if inflation doesn’t start to ease. As we approach the September meeting, the data will guide decisions. All attention is on upcoming releases to determine if the job market further declines or if inflation rises again. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now