Federal Reserve Governor Lisa Cook backed a decision to keep interest rates steady at the last Federal Open Market Committee (FOMC) meeting, saying she wants additional data before supporting a change. She said inflation risks outweigh risks to the labour market, and reiterated her commitment to restoring price stability.
In remarks delivered at an event in Alaska, Cook said she is prepared to respond if evidence of continued disinflation does not emerge soon. She also said inflation has remained persistently high for five years, while leaving open the possibility that price growth could moderate.
Policy Outlook and Rates Strategy
We believe derivative traders must prepare for a hawkish shift in the coming weeks as policymakers prioritize fighting inflation over supporting the job market. With US inflation holding sticky at 3.1% in mid-2026, the central bank’s patience with high prices is clearly wearing thin. Since price pressures have now lingered for five consecutive years, we should brace for interest rates to remain elevated much longer than the market expects.
To exploit this mismatch, we recommend shorting Secured Overnight Financing Rate (SOFR) futures expiring in late 2026. Current Fed funds futures imply a 60% chance of rate cuts by the end of the year, a probability we find highly unrealistic. Trading bear call spreads on these contracts offers a strategic way to profit as the market is forced to price out these premature rate cuts.
Portfolio Hedging Amid Rising Yields
We also suggest buying put options on long-duration Treasury ETFs to hedge against a sudden jump in yields. Historically, during the sticky inflation era of 2022 to 2023, unexpected Fed pauses triggered sharp sell-offs in bond markets and pushed the 10-year yield above 4.5%. Buying short-term puts now will help protect portfolios ahead of the crucial September policy meeting.
