Lorie Logan, President of the Federal Reserve Bank of Dallas, said uncertainty in the US economy continues at an event at Columbia University on Friday. She pointed to the tech sector as one of the biggest sources of uncertainty.
Logan said she supported the Federal Reserve’s January decision to hold policy steady as the job market stabilised. She said she is cautiously optimistic inflation can return to target, but is not convinced it will reach 2%.
Tariff Uncertainty And Next Steps
She said there is now more uncertainty on tariffs after a court decision. She said many factors are affecting the aftermath of the tariff decision, and it is unclear what will happen next.
Logan said upside inflation risks remain and that policy is well positioned to manage risks to the Fed’s mandate. She said she is concerned that economic demand could outstrip supply.
On the labour market, she said it does not appear that AI is displacing workers. She said the job market break-even level is around 30K jobs per month at the moment.
She said banks should consider having a diverse depositor base. She also said banks should ensure they are ready to access liquidity.
Market Volatility And Rates Outlook
The continued economic uncertainty and persistent inflation risks signal that we should prepare for higher market volatility. With the path to 2% inflation not guaranteed, the Federal Reserve is likely to maintain a hawkish stance, pushing back against market expectations for imminent rate cuts. This environment suggests buying volatility through options on major indices like the S&P 500 could be a prudent strategy in the coming weeks.
This cautious view is supported by the most recent economic data, as the January 2026 jobs report showed payrolls expanding by a stronger-than-expected 210,000, well above the 30,000 breakeven level mentioned. Furthermore, the latest Consumer Price Index (CPI) report showed core inflation remains sticky at 3.4%, reinforcing the idea that the final leg of disinflation will be difficult. The VIX, a key measure of expected market volatility, has already responded by climbing from its recent lows to trade above 17 this past week.
We see that interest rate futures markets are still pricing in at least two rate cuts by the end of this year, a view that seems overly optimistic now. Derivative traders should consider positioning for a “higher for longer” interest rate scenario. This could involve using SOFR futures or options to bet against the market’s dovish expectations for the second half of 2026.
The specific mention of uncertainty stemming from the tech sector is a direct warning for that part of the market. High interest rates and economic ambiguity are particularly challenging for growth-oriented stocks whose valuations rely on distant future earnings. We should consider using derivatives to hedge long technology positions, perhaps by purchasing put options on the Nasdaq 100 tracking ETF.
Looking back, this situation is reminiscent of the market dynamics we experienced throughout 2025. During that period, traders who repeatedly tried to front-run a Fed pivot were often disappointed as policymakers held firm against inflation. The current commentary suggests we may be in for a repeat, where patience and a cautious stance will be rewarded.
A new wildcard is the recent court decision on tariffs, which introduces fresh uncertainty around supply chains and input costs. This development adds another potential source of upside price pressure that is not yet fully reflected in market pricing. It reinforces the case for owning protection against unexpected market swings.
