The Federal Reserve’s Hammack expressed disappointment with the recent NFP report but maintained that the labour market remains healthy. He anticipates that, despite this balance, the jobs market may weaken towards the end of the year.
Hammack emphasised that the Fed is currently more pressured by inflation issues than employment. Inflation is causing challenges for businesses, which suggests price increases are necessary as absorbing rising costs is no longer feasible.
Current Monetary Policy
He described the current monetary policy as somewhat restrictive due to the economy nearing its long-term neutral rate. Despite this, the Fed remains open-minded, awaiting new data to inform future policies.
Before the Fed’s next meeting, Hammack will consider another jobs report and two more inflation reports. He described the current period as challenging for setting monetary policy, citing his profound respect for Fed Chair Powell and basing future decisions on forthcoming data.
Meanwhile, the NASDAQ index has decreased by 288 points, suggesting market concerns. Businesses continue to navigate considerable uncertainty in this economic climate.
The jobs report for July 2025 was a letdown, coming in at just 165,000 new jobs when forecasts were closer to 200,000. However, wage growth was surprisingly strong at 0.5% for the month, keeping inflation worries front and center. This conflicting data is pushing the NASDAQ down over 1.5% today as the market digests the news.
Inflation Concerns
We are seeing that the Federal Reserve is more concerned with the persistent pressure of inflation than with a slight cooling in the job market. The pain from rising prices is viewed as the greater economic danger at this moment. This suggests a continued hawkish stance, prioritizing the inflation fight over fears of a slowing economy.
The main worry is that businesses, which are dealing with high uncertainty, can no longer absorb rising costs and will have to pass them on to consumers. We saw early signs of this in the last CPI report for June 2025, which came in hotter than expected. This trend is now expected to push inflation higher as we head into the end of the year.
For derivative traders, this setup points toward increased market volatility over the coming weeks. With the Fed signaling it is highly data-dependent, the two upcoming inflation reports and the next jobs report will be major market-moving events. We believe strategies that profit from price swings, like buying VIX calls or establishing straddles on major indices, should be considered.
Given the focus on sticky inflation, it seems clear that interest rates will remain elevated for longer than many had hoped. This environment is reminiscent of the market we navigated back in 2023, where high rates put a ceiling on growth and technology stock valuations. Therefore, puts on rate-sensitive sectors or baskets of unprofitable tech stocks could offer valuable protection.
Policy is being described as only “a little restrictive,” which means the Fed feels it has more work to do if inflation doesn’t cool down. We will be going into the September meeting with an open mind, but the data will drive the decisions. All eyes are on the upcoming data releases to see if the job market weakens further or if inflation indeed ticks back up.
