Pressure continues on Fed Chair Powell and the Federal Reserve, mainly concerning interest rates, which many believe may be too high by at least three points. Criticism directed at Powell also extends to other Fed members. If these views gain traction, the group’s stance could shift.

Focus On Inflation Data

Much depends on upcoming inflation data. Powell expects inflation to increase in June, July, and August. We will soon see June’s inflation numbers. The Consumer Price Index for July will be released on July 15, followed by the Producer Price Index on July 16. With June’s inflation figures pending, we expect modest increases in the coming months. Powell has already set market expectations, meaning any rise below the expected level could lead traders to consider a more favorable path for rates. The market has largely anticipated Powell’s outlook of a temporary rise, so any significant deviation—either greater or smaller—will likely cause sharp changes in futures contracts.

Monetary Policy Expectations

The previous section shows that monetary policy might not be fixed. Short-term yields indicate that inflation has not yet met the central bank’s targets. However, a sharp increase in CPI or PPI numbers would reinforce this view. Without such confirmation, some members of the FOMC might quietly adjust their positions. If this occurs, it is usually reflected in subtle language shifts—through speeches, meeting minutes, or informal remarks. Waller and others on the Board are known for expressing changes in views sooner than their colleagues. If inflation data appears less concerning than Powell expects, even for one month, someone like Waller might argue it as a reason to reconsider tightening— or at least to pause. In our opinion, this leads to unusually sensitive options pricing. Risk reversal skews may start favoring calls, especially in the 2- to 6-month range. This could show growing confidence in a more moderate policy response if inflation doesn’t rise sharply. Anyone hedging against upside risks in rates should take this period into account. The critical dates remain unchanged. On July 15, we will see how consumer prices have changed, and the next day will provide insight into broader economy input costs. If these two figures differ, they could create added volatility, as one shows real-world pricing while the other impacts manufacturing and supply chains. Additionally, swap spreads and Fed Funds futures should be watched closely during the 48 hours after both reports. Historically, even minor surprises can lead to significant price adjustments across the curve, especially in short-dated instruments. Considering Powell’s forecast, traders need to reassess their strategies in anticipation of this period. Pay close attention to expectations in Eurodollar strips and SOFR FRAs as we approach the data. The tension between what the market believes and what policymakers indicate suggests the repricing may begin modestly and then accelerate. This makes entering positions ahead of CPI riskier yet potentially more rewarding, as long as exposure is properly hedged before the release. In summary, traders should not rely solely on past trends. The market still shows uncertainty, and a surprise in either direction could spark a broader discussion within the Fed. Initially, they may not make loud statements, but we’ll notice changes in their language and messaging. Create your live VT Markets account and start trading now.

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