US Treasury Secretary Scott Bessent stated that the Federal Reserve (Fed) is fully responsible for deciding interest rates and expressed a wish for open-mindedness among policymakers. Conversations about possible candidates for the Fed chair are continuing, but no decisions have been made yet. The Federal Reserve plays a crucial role in US monetary policy, focusing on price stability and full employment. It changes interest rates to control inflation and unemployment, which also affects the value of the US Dollar. For instance, raising interest rates can strengthen the Dollar by making it more attractive for foreign investment. On the other hand, when inflation is low or unemployment is high, lowering interest rates can weaken the Dollar.

The Fed Policy Meetings

The Fed meets eight times a year to discuss policy through the Federal Open Market Committee (FOMC). This committee is made up of the seven Board of Governors members and representatives from Reserve Banks. Quantitative Easing (QE) is used in times of crisis, leading to a weaker Dollar, while Quantitative Tightening (QT) stops bond purchases and reduces reinvestments, which could strengthen the Dollar. FXStreet shares insights about finance and market movements but notes that this information is not investment advice. It’s important to acknowledge the risks involved in trading and investing, as individuals are responsible for their decisions. The Federal Reserve’s recent choice to pause has kept interest rates high, supporting the US Dollar. We’ve noticed this with the EUR/USD pair dropping below 1.2000, indicating that the market views the Fed as holding steady for now. However, Treasury Secretary’s recent comments about wanting an “open mind” at the Fed add a new layer of uncertainty. This hints at potential political pressure for a more lenient policy, which creates tension about the future of the Fed Chair position.

Rising Market Volatility

We’re witnessing conflicting data, which is contributing to rising market volatility. The last Consumer Price Index (CPI) report for December 2025 showed inflation still at 3.1%, supporting the Fed’s decision to pause. At the same time, the jobs report for that month showed unemployment rising to 4.2%, prompting calls for rate cuts. This inconsistency signals that market volatility may increase in the upcoming weeks. The VIX index has already climbed from late 2025 lows of 14 to over 18, suggesting traders might want to adopt strategies that benefit from price fluctuations, like buying straddles or strangles on major indices and currency pairs. We saw a similar situation in 2018 and 2019 when the White House pressured the Fed to lower rates. That led to turbulent market conditions as traders compared economic data with political statements. The current atmosphere feels quite similar. The high price of gold, despite pulling back from its recent peak, indicates market nervousness. Gold is acting as a safeguard against the growing uncertainty regarding the Fed’s independence and future policies, making its price a key indicator of market anxiety. Create your live VT Markets account and start trading now.

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