The Federal Reserve is working hard to lower inflation to its 2% target, according to the President of the Minneapolis Fed. Although inflation is still high, there are signs that the labor market is starting to slow down. People are paying close attention to the voting results from the September meeting. It’s important to keep an eye on inflation linked to tariffs as goods prices are rising due to these tariffs.

Current Economic Indicators

Recent data shows that the economy is slowing and moving toward a soft landing. The Federal Reserve is in a tough spot regarding its goals. The Fed is not done addressing inflation and aims to reach its 2% target. The Consumer Price Index (CPI) report for August 2025 shows stubborn inflation at 3.4%. This strict position persists even with other data suggesting a slowdown, creating a challenging situation for the market where policy discussions don’t match economic realities. There are clear signs that the labor market is cooling, as shown by the latest jobs report which recorded only 150,000 payrolls, falling short of expectations. This indicates the economy is likely moving toward a soft landing. As a result, the rate decision at the upcoming September Fed meeting is highly uncertain for traders.

Market Volatility and Fed Meetings

Given these mixed signals, we can expect increased market volatility in the coming weeks. The options market for the S&P 500 already reflects this anticipation. We expect the VIX index, currently around 18, may rise toward its recent highs as we near the Federal Open Market Committee (FOMC) meeting. This situation brings back memories of the market tension before key Fed meetings in 2023. In the rates market, derivatives linked to the Fed Funds Rate indicate about a 40% chance of another quarter-point increase by the end of the year. Traders will use SOFR futures and options to manage risks or speculate on a surprise rate hold. The possibility of a split vote hints that the policy statement itself will be as significant as the rate decision. Additionally, we need to be aware of inflation pressures from factors outside the Fed’s control, such as new tariffs on consumer electronics and auto parts. These tariffs are keeping goods inflation high, complicating the central bank’s tasks. It would be wise to consider options to protect against downside risks in retail and manufacturing ETFs that are most affected by these import costs. Create your live VT Markets account and start trading now.

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