The day started with a tweet from Bill Pulte, accusing Fed Governor Cook of possibly committing mortgage fraud by listing two properties as her main home. The matter was sent to Attorney General Bondi, and President Trump demanded Cook’s immediate resignation, although no charges have been filed. There is speculation that Trump hopes to replace Fed Governors to influence decisions by the board. Mortgage fraud typically isn’t a reason for dismissal; Pulte mentioned the claim came from a “tip.” In response to this speculation about a change in the Federal Reserve Board, the dollar fell slightly.

Impact Of FOMC Meeting Minutes

In other news, the FOMC meeting minutes were published, revealing bigger concerns about inflation risks compared to risks related to employment. Participants expressed worries about tariffs and possible changes in inflation expectations. However, they also recognized risks concerning potential drops in employment and the influence of AI. Since the meeting took place before a US jobs report, views shifted from focusing only on inflation to a dual focus, making it harder to justify rate cuts while inflation is above 2%. The markets reacted with volatility; the NASDAQ dropped sharply but recovered slightly. The S&P saw a small dip, while the Dow ended up slightly. European markets showed mixed results, and US yields closed slightly lower. The auction for 20-year notes attracted somewhat better-than-average interest. The political noise surrounding the Federal Reserve, especially the claims against Governor Cook, creates additional uncertainty for traders. This situation suggests a possible shift toward a more politically influenced Fed, which has historically favored lower interest rates. The dollar’s dip indicates that further pressure on the board could weaken the currency and lower yields.

Volatility In The Fed Funds Futures Market

Today’s FOMC meeting minutes are mostly irrelevant for future strategies. They highlighted a focus on inflation risks but were based on data from before the August 1st jobs report, which changed everything. That report revealed a significant drop in the average job gain, down to just 35,000, shifting attention from inflation to the dual mandate that includes employment. This clash between older hawkish views and new weak data has created noticeable volatility, evident in the Nasdaq’s dramatic reversal. The Fed funds futures market now reflects over a 60% chance of a rate cut by the October meeting, disregarding the tone of today’s minutes. For derivative traders, it may be wiser to prepare for lower interest rates using options on Treasury ETFs like TLT, rather than relying on outdated inflation concerns. Given the weak job market data, it’s essential to protect equities on the downside. The VIX, which measures market fear, recently spiked over 18, and today’s uncertain market behavior suggests more instability is on the way. Buying put options on the S&P 500 (SPY) or Nasdaq 100 (QQQ) could offer coverage against a possible slowdown, which now seems more likely. The combination of a weakening economy and political pressure on the Fed signals bearish trends for the U.S. dollar. The Fed is caught between inflation, which is still at 3.1% according to the July 2025 CPI report, and a rapidly declining job market. This situation will likely force them to accept some inflation while cutting rates, making bets on a lower dollar through futures or options a smart choice for the upcoming weeks. Create your live VT Markets account and start trading now.

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