Mary Daly discussed the current state of the job market, indicating it has weakened significantly over the past year. Her comments were made in the context of artificial intelligence’s impact on employment.

Daly emphasised that the Federal Reserve’s decision to cut rates aimed to bolster the labour market. Rate cuts are seen as a tool to encourage economic activity and employment.

Artificial Intelligence And Its Impacts

While speaking about artificial intelligence, Daly touched on its potential effects on the workforce. The implications of AI advancements could be widespread, affecting various sectors and job roles.

In her address, Daly focused on the necessity to understand and manage these changes. This includes preparing for the challenges AI could pose to traditional employment structures.

The importance of considering these factors in policy-making was underlined. The discussion centred around maintaining a balanced approach to stimulate the economy while managing technological transitions.

The comments confirm that the Federal Reserve’s recent rate cut was a direct response to a weakening jobs picture. This signals a clear policy shift from fighting inflation to supporting employment. We should interpret this as a green light for continued dovishness from the Fed in the coming months.

Effects Of A Weakening Job Market

This softening has been clear in the data, as we saw in the August 2025 jobs report which added only 95,000 roles, missing forecasts significantly. The unemployment rate also ticked up to 4.3%, a level not seen since the brief recession scare of early 2024. These statistics lend weight to the idea that more easing could be necessary if the labor market continues to cool.

In response, we are seeing a build-up in interest rate derivatives that bet on lower rates for longer. SOFR futures contracts for early 2026 are now pricing in a high probability of at least two more cuts by the middle of next year. Options on Treasury futures also show a strong preference for calls, indicating an expectation of higher bond prices.

For equity index options, this creates a complex setup, as lower rates support valuations but a weakening economy threatens earnings. We believe traders should consider strategies like call spreads on the S&P 500 to capture limited upside while the market digests this news. Simultaneously, buying cheap, out-of-the-money puts for October and November offers a hedge against further negative economic surprises.

These conflicting signals are likely to keep market volatility elevated. The VIX index has been holding above 18, reflecting this economic uncertainty in a way we haven’t seen since the rate hike cycle of 2022-2023. We see VIX call options as a relatively inexpensive way to protect portfolios against a sharp downturn.

A dovish Fed is also putting sustained pressure on the U.S. dollar, which has remained below the key 102 level on the DXY index. We expect this trend to continue as long as the labor market is seen as the Fed’s primary concern. This makes long positions in currency derivatives for the euro and yen an attractive play against the dollar.

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