Mary Daly from the Federal Reserve Bank of San Francisco talked about inflation and monetary policy in a recent interview. She noted that prices for goods have stayed stable, and recent rate cuts have helped the job market while also easing inflation.

Staying Alert on Inflation and Productivity

Daly believes that the monetary policy is in a good spot, but it’s still important to stay alert about inflation. Right now, there are no signs of rising inflation in services, housing, or public expectations. Slowing wage growth signals a drop in demand for jobs, while the value of assets shows a belief in higher productivity, regardless of AI’s influence. Daly stated there’s no proof that monetary policy is failing to impact the economy. Agustin Wazne, who wrote the article, focuses on commodities at FXStreet, a site that provides financial market insights. The article does not offer investment advice, and readers should do their own research before investing. The Federal Reserve seems to be in a waiting mode, especially after the September 2025 rate cut. The main concern now is if the strong productivity gains from earlier this year will keep going. Recent data revealed that nonfarm productivity jumped by 4.1% in the third quarter, which supports the Fed’s current views. Since the Fed does not want to keep interest rates too high for too long, traders might find opportunities in positions that benefit from stable or slowly declining rates. Options on Secured Overnight Financing Rate (SOFR) futures could be useful for betting on another possible rate cut early in 2026. This fits with the idea that slowing wage growth will keep the Fed cautious.

Market Expectations and Risks

Current asset prices, especially in tech stocks, reflect high hopes for productivity growth driven by AI. Buying call options on indices like the Nasdaq 100 could be a way to take advantage of this trend. This is a belief that the recent productivity surge, which lowered the October 2025 Consumer Price Index (CPI) to 2.8%, will prove to be lasting. The biggest risk is that productivity gains might slow down, making the current high asset values seem wrong. It may be wise to buy put options on broad market ETFs as a safety measure against a disappointing productivity report in Q4 2025. If those numbers fall short, it could undermine the entire outlook supporting the market’s historically high forward price-to-earnings ratio of 22. Volatility has been low, with the VIX index around 14 for the past month, showing the Fed’s positive sentiment. This situation might be good for selling volatility, but a sudden drop in productivity data could lead to quick changes in the market. Therefore, purchasing affordable, longer-term VIX call options could provide a solid protection for portfolios. Create your live VT Markets account and start trading now.

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