Insights 
VT 
Atlanta Fed President Rafael Bostic is addressing the economic outlook. Despite market expectations for a September rate cut, Fed members are cautious, given the strong labour market. Bostic notes that low to moderate-income consumers are experiencing stress, which is beginning to affect higher-income groups. However, upper-income consumers remain stable.
Current Economic Insights
Smaller businesses are under more pressure compared to larger ones, and there’s an increase in credit card usage, indicating consumer behaviour. The Atlanta Fed’s GDPNow estimates a 2.5% growth for Q3, with a revision scheduled for Friday. The sticky-price consumer price index, which measures items with slower price changes, rose by 4.6% annualised in July, up from 4.3% in June.
Year-over-year, the index increased by 3.4%. Excluding food and energy, the core sticky-price index saw an annualised rise of 4.8% in July, with a 12-month change of 3.4%.
The market is fully pricing in a rate cut for the September meeting, yet we are hearing signs of hesitation from within the Fed. The primary concern is sticky inflation, which accelerated to a 4.6% annualized pace in July. This suggests underlying price pressures are proving difficult to control, giving the Fed a strong reason to wait.
While the weaker jobs report for July, which saw payrolls grow by only 155,000 against expectations of 190,000, is fueling rate cut bets, other data supports a pause. The most recent Consumer Price Index report released today showed headline inflation at 3.3% year-over-year, slightly above forecasts. This mixed data of a slowing labor market but persistent inflation creates uncertainty that the market is ignoring.
Investment Strategies Amid Economic Uncertainty
We are seeing signs of stress build among consumers and small businesses, which is a key indicator for the economy’s direction. Total household credit card debt just reached a record $1.25 trillion in the second quarter of 2025, with delinquency rates ticking up to their highest level since 2012. This rising reliance on credit shows that consumer strength is becoming more fragile.
Given this disconnect, derivative traders should consider positions that profit if the Fed surprises the market by holding rates steady in September. This could involve options strategies on short-term interest rate futures, like those tied to SOFR, that are currently not pricing in the risk of a hawkish pause. A relatively inexpensive way to position for this outcome is by purchasing out-of-the-money put options on December 2025 SOFR futures.
A failure to cut rates would likely cause a spike in market volatility and a drop in equities. Traders could purchase VIX call options, which are currently priced for low volatility, to profit from a potential market shock. Similarly, buying put options on major indices like the S&P 500 or Nasdaq 100 offers a direct way to bet on a negative market reaction.
We have seen this script play out before, such as in late 2018 when the Fed continued raising rates against market expectations, leading to a significant equity sell-off. The current situation, with high sticky inflation and a Fed openly stating it has the luxury to wait, echoes that period. This historical precedent suggests the risk of a hawkish surprise is higher than the market believes.
