White House Adviser Kevin Hassett reported core inflation at 1.6%, with high growth and stability in desired inflation levels. He cautioned against declaring victory over inflation issues, despite optimistic CPI reports showing wage growth outpacing price increases.
Taxpayers can anticipate sizable refunds in the coming year, and a major announcement regarding housing costs is expected. Regulatory measures could incentivise states to streamline homebuilding processes.
Currency Market Changes
Recent currency changes show the US Dollar gained against the Euro. The US Dollar also exhibited variable performance against other currencies, with specific percentage changes detailed in a heat map comparing currency strengths.
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With the White House signaling that the inflation fight is nearly won, we should adjust our rate expectations. The assertion of 1.6% core inflation, combined with recent data showing Q3 2025 GDP growth at a solid 3.1%, suggests the Federal Reserve’s work is done. This means the aggressive rate hikes we saw back in 2023 and 2024 are firmly in the rearview mirror.
This environment changes the calculus for interest rate derivatives. With the Fed Funds Rate holding at 4.50%, futures markets are now pricing in at least two rate cuts for 2026, a significant shift from just a few months ago. We should consider positioning for a lower-rate environment using instruments like interest rate swaps or options on Treasury futures.
Market Outlook and Strategies
The commentary points to a “soft landing,” which typically dampens market volatility. The VIX is currently trading near a yearly low of 14, reflecting this calm. This makes selling options premium an attractive strategy, such as through iron condors on the S&P 500, to capitalize on range-bound market action.
For currency traders, the prospect of future Fed rate cuts puts downward pressure on the US dollar, despite its current strength against the Euro. While the Bank of England also just cut rates, their divided decision suggests they may pause, creating a policy divergence. We could use call options on GBP/USD to position for potential dollar weakness heading into the new year.
We must also watch for the planned housing announcement, as measures to reduce shelter costs would be further disinflationary. This, combined with upcoming tax refunds boosting consumer spending, reinforces the narrative of a stable economy. This backdrop is generally favorable for risk assets and weighs against needing restrictive monetary policy.
The current consolidation in gold around $4,330 an ounce seems poised to break. A weaker dollar and falling real interest rates are historically bullish for precious metals. We should look at long-dated call options on gold to profit from a potential move higher in the first quarter of 2026.
