The Dow Jones Industrial Average (DJIA) climbed back to 46,800 briefly as major indexes try to regain their upward momentum. Investors seem mostly unfazed by the ongoing US government shutdown, despite challenges in restarting federal operations that raised some concerns. On Wednesday, the Dow slipped to about 46,600 as investors remained cautious. The latest minutes from the Federal Reserve’s meeting indicated several officials are taking a more careful approach, citing “downside risks” to employment. However, the Fed did revise its GDP forecast higher for 2028.

Interest Rate Expectations

After the Fed’s minutes were released, interest rate expectations dipped slightly. Current markets show a greater than 92% chance of an interest rate cut on October 29. Yet, the likelihood of a rate cut in December is dropping, and a third cut might be pushed to January 2026. Investors are now looking ahead to the University of Michigan Consumer Sentiment Index. This index is expected to drop slightly to 54.2, with a focus on inflation expectations. The Fed’s dual mandate aims to manage interest rates to maintain price stability and full employment. In extreme cases, the Fed might resort to Quantitative Easing or Quantitative Tightening, both of which impact the US Dollar. Quantitative Easing increases credit flow by adding more Dollars, while Quantitative Tightening stops bond purchases, thus supporting the Dollar’s value. With the Dow hovering around 46,600, we can see clear signs of investor caution due to the government shutdown. This uncertainty fosters an environment ripe for volatility-based derivative strategies. The Cboe Volatility Index (VIX) is currently above its historical average at about 22, making options like straddles or strangles on major indices a wise choice ahead of any shutdown news. The Federal Reserve is sending mixed signals, adding to the market’s uncertainty. While recent dovish comments suggest more rate cuts, an unexpected upward revision in long-term GDP growth introduces a more hawkish perspective. This contradiction explains the market’s tepid response and indicates that any sharp rally may face selling pressure until the policy direction becomes clearer.

Upcoming Consumer Sentiment Report

The University of Michigan Consumer Sentiment report coming out this Friday is crucial for derivative traders. A significant drop in this report, or a surge in 5-year inflation expectations, could unsettle the market and jeopardize the chances of a December rate cut. Traders should monitor options pricing on Thursday to gauge the expected market movement post-release. Reflecting on the 2018-2019 government shutdown, we recall that the market was initially volatile but eventually ignored the disruption once a solution seemed likely. This suggests that while short-term puts on the DJIA may provide some protection, holding a bearish position due solely to the shutdown could be misguided. The duration of the shutdown is vital, and as weeks pass, both economic damage and market risk increase. For those watching interest rates, the October 29 rate cut seems largely priced in, presenting limited opportunities. The real focus now is on the timing of the third cut, with Fed Funds futures showing a slight shift in odds from December to January 2026. This opens up opportunities for calendar spread trades on SOFR futures. The Fed’s commitment to cutting rates continues to place downward pressure on the US Dollar. The latest Consumer Price Index revealed core inflation at 2.7% in August 2025, highlighting the risk the Fed is taking with its easing policies. This is likely to create sustained challenges for the Dollar, making long-dated call options on currency ETFs, such as the Invesco CurrencyShares Euro Trust (FXE), an appealing position. Create your live VT Markets account and start trading now.

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