Insights 
VT 
Private Credit Market And Economic Growth
The private credit market requires careful monitoring, particularly its appropriateness for a 401K. Kashkari acknowledged the enduring strength of the US economy and the potential of immigration to spur economic growth.
He stated that the housing affordability crisis requires an increased housing supply rather than interest rate cuts. There is a greater risk of labour market surprises than inflation increases. Prolonged government shutdowns diminish confidence in economic assessments.
At present, the US dollar Index (DXY) is trading at approximately 98.27, down 0.40% on the day. The Federal Reserve meetings and policies like Quantitative Easing (QE) and Quantitative Tightening (QT) play roles in affecting the strength of the US Dollar, with QE typically weakening it and QT having a strengthening effect.
We are facing significant uncertainty in the coming weeks. The ongoing federal government shutdown, which began on October 1st, means we are missing key data like the next inflation and jobs reports. This makes it challenging for us, and the Fed, to get a clear read on the economy’s direction.
Economic Strategy Amid Uncertainty
The job market is clearly slowing down, which increases the odds of a negative surprise. The last non-farm payrolls report for September showed a gain of only 95,000 jobs, a sharp deceleration from earlier in the year. This weakness suggests the Federal Reserve will be hesitant to consider any further tightening.
Despite the slowing labor market, we can’t ignore persistent inflation. The last core CPI reading we received in September was still elevated at 3.8%, well above the Fed’s target. This creates a difficult balancing act for policymakers, who are worried about goods inflation spilling over.
Given this policy blindness, trading for a spike in volatility seems like a prudent strategy. The CBOE Volatility Index (VIX) has already climbed from 14 to over 19 in the past two weeks, reflecting the growing unease. Options strategies that benefit from price swings, rather than a specific direction, could perform well.
The US Dollar Index has reflected this dovish shift, falling from a peak near 101 just three weeks ago to its current level around 98.27. As long as the shutdown continues and the labor market shows weakness, downward pressure on the dollar is the more likely path. Any puts on the dollar or calls on currency pairs like the EUR/USD could be considered.
We saw a similar situation during the government shutdown that spanned late 2018 into early 2019. That period of data uncertainty and market stress directly preceded the Fed pausing its rate hikes and eventually cutting them later that year. History suggests that prolonged political gridlock often forces the Fed’s hand toward a more cautious stance.
