Economic activity is steady, neither rising nor falling. Bank funding pressures are easing, and credit quality remains strong. A lack of skilled workers continues, making companies wary of spending on new projects and hiring. To cope with tariffs, businesses are cutting costs and negotiating with suppliers, avoiding layoffs for now.

Business Strategies And Consumer Impact

Businesses that rely on imports are passing costs to customers, while companies closer to consumers have kept prices stable for now. The Fed is meeting its employment goals but falling short on inflation, with the job market close to full employment. There is a risk that the Fed might miss its targets for both inflation and employment, which could lead to job losses. Although tariff impacts on inflation might decrease, inflation could still remain persistent. While the job market is currently balanced, weaker economic activity could threaten jobs. The Fed is effectively managing risks related to both of its goals. Economic activity seems to be stable, indicating a period of lower volatility in the upcoming weeks. The VIX, which measures expected volatility, is trading around 14, a historically low level that shows this stability. In this environment, strategies that profit from sideways market movement—like selling out-of-the-money option strangles on major indices—may be favorable.

Federal Reserve And Market Expectations

The Federal Reserve has indicated that interest rates will likely remain steady for now. With the latest core PCE inflation data from July at 1.7%, traders should consider options that will benefit if expectations for a rate cut decrease. This suggests looking at interest rate futures that reflect current rates staying the same through the end of the year, as the market currently sees only a 20% chance of a cut by November. However, there is a clear risk to jobs if the economy slows further. The July jobs report showed an unemployment rate of 3.8%, but hiring momentum is slowing compared to early 2025. Therefore, purchasing some inexpensive, longer-dated put options on stock indices could be a wise way to protect against a sudden downturn in the labor market. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now