Lorie Logan, President of the Federal Reserve Bank of Dallas, said the Fed should not give guidance that suggests easing policy now. She said the next interest rate move could be a cut or a hike.
She said the economic outlook is very uncertain. She said the job market has been stable.
Inflation Risks Remain Elevated
She said she is increasingly concerned about returning inflation to 2%. She said the path for inflation is uncertain.
She dissented against an easing bias at an FOMC meeting. She also repeated that conditions have been stable.
The idea that the next Fed move is a guaranteed cut is now off the table. We are facing a period of high uncertainty where both a rate hike and a rate cut are possible in the coming months. This means we should expect market volatility to increase significantly.
This shift is happening because inflation remains stubborn. The latest Consumer Price Index report for April 2026 showed a concerning jump to 3.6%, beating expectations and reversing the slow downward trend we saw earlier in the year. The Fed is increasingly concerned about its ability to get inflation back to its 2% target.
Market Volatility May Increase
Traders should consider buying volatility, as the cost of options is likely to rise. We have seen the VIX index, a key measure of market fear, already climb from its lows below 14 to over 17 in the past week. This is a clear signal that protection is getting more expensive.
The interest rate futures market has been pricing in at least two cuts by the end of 2026, which now looks overly optimistic. This presents an opportunity to bet against those expectations, perhaps by selling near-term SOFR futures contracts that have not fully adjusted. This repricing could be a source of profit.
We saw a similar situation throughout 2025, when the market repeatedly priced in aggressive rate cuts that never happened due to persistent inflation. Learning from last year, it is wise to be skeptical of any guidance that points only toward easing. The path for inflation remains very uncertain.
The stable job market gives the Fed the flexibility to remain hawkish. With the April jobs report showing a solid gain of 250,000 positions and unemployment holding at 3.8%, the Fed has no urgent reason to cut rates to support the economy. This strength allows them to focus entirely on fighting inflation.
Given this uncertainty, outright directional bets are risky. Using options to construct straddles or strangles on major indices could be a prudent way to profit from a large market move in either direction. This strategy lets you trade the increase in volatility without having to guess the ultimate outcome.
