Recent inflation trends are higher compared to the current job market, as highlighted by the Fed’s Schmid before two significant events: the Fed’s meeting on September 16–17 and the Kansas City Fed’s annual conference at Jackson Hole. Schmid adopted a hawkish outlook, suggesting that a rate cut is unlikely soon. Schmid noted that inflation is still above the target, closer to 3% instead of the desired 2%. He warned that reducing rates now could worsen inflation expectations. He emphasized the challenge of bringing inflation down from 3% to 2% and cautioned that early rate cuts could delay progress.

Need For Definitive Data

He stressed the importance of having clear data before changing any policies and acknowledged that, despite some weaker job figures, there is still optimism among business leaders. Schmid believes the current policy is not hindering economic growth. Everyone is watching Powell’s upcoming speech on Friday for any hints about future policies. At the July meeting, the Fed kept rates at 4.25%–4.5%, with two governors disagreeing and wanting cuts. President Trump is still advocating for lower rates. Earlier, Fed’s Bostic suggested that changes in immigration could adjust job growth expectations to around 50,000, indicating that the recent three-month average of 35,000 is actually better than it seems. It’s clear that the Federal Reserve is not rushing to cut interest rates. Recent data, such as the July 2025 core CPI staying steady at 2.9%, supports the idea that tackling the last part of inflation is the hardest challenge. This indicates that policies will likely stay tight through the upcoming September 16-17 meeting. While job growth has recently slowed, with the July 2025 report showing an increase of 45,000 jobs, this isn’t a sign of serious weakness. Some within the Fed think that, due to changing immigration patterns, the economy now only needs about 50,000 jobs monthly to stay on track, which makes current job levels less concerning. The steady 4.1% annual wage growth also makes officials cautious.

Trading Implications For The Market

For traders dealing in interest rate derivatives, this suggests that last week’s decline in Treasury futures could have further to go. The market has quickly adjusted expectations, with fed funds futures now indicating less than a 15% chance of a rate cut before November’s meeting. Short-term interest rate futures tied to SOFR are likely to remain stable due to this hawkish outlook. This sustained “higher for longer” interest rate scenario may limit the potential rise of equity index futures for now. We could enter a range-bound market, presenting opportunities to sell premium using options strategies like iron condors on the S&P 500. Traders should also monitor the VIX, as any unexpected hawkish remarks from Powell at Jackson Hole could lead to a jump in volatility. Reflecting on the 1970s, we see that cutting rates too early can reignite inflation and force even steeper hikes later. This historical lesson likely weighs on officials’ minds as they aim to avoid repeating past mistakes. All eyes will be on the Fed chair’s speech this Friday for any changes in tone, as this could significantly impact the market. Create your live VT Markets account and start trading now.

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