Mary Daly, President of the Federal Reserve Bank of San Francisco, said one month of data is not decisive. She said inflation is above target and policy now involves balancing risks. Daly said both of the Fed’s goals carry risks at the moment. She said the jobs picture is not a clear read and the labour market looks vulnerable.

Interpreting Recent Payroll Signals

She said two payrolls reports should be averaged, and recent figures are below a 30,000 break-even level. She noted this is based on only a couple of months of data. Daly said wage growth should equal inflation plus productivity growth, which is higher. She said current wage growth does not show frothiness. She said the latest jobs report has her attention, and she is worried the labour market may be weaker than previously seen. She said strikes, snow, and population benchmarking make the report harder to interpret. Daly said an oil price shock would be felt by consumers and depends on how long the disruption lasts. She said the Fed needs more time to decide, could hold rates steady, and is not in a position to consider rate hikes.

Trading Volatility In A Two Sided Fed

She also said there is no evidence the economy is running hot. She said she is slightly optimistic that AI may lift productivity, but wants to see proof. The Federal Reserve is now signaling that risks are balanced, with both a weakening job market and above-target inflation causing concern. This creates significant uncertainty about the path of interest rates, suggesting a period of higher market volatility. We should therefore consider strategies that profit from price swings, such as buying options on major indices. The latest jobs report, which showed payrolls growing by only 25,000 in February against expectations of 180,000, is a major warning sign for the economy. However, with the most recent Consumer Price Index reading still elevated at 2.8%, the Fed is hesitant to cut rates to support employment. This conflict makes options on SOFR futures a useful tool for trading the now-wider range of potential outcomes for the next FOMC meetings. We remember the series of rate cuts in the second half of 2025, which were intended to put a floor under the job market and ensure a soft landing. The current weakness in hiring, however, calls that success into question and creates a difficult backdrop for equities. This environment is perfect for buying volatility, as the VIX has been hovering near historically low levels and seems poised to react to this new uncertainty. Adding to the complexity is the recent spike in oil prices, with Brent crude surging past $95 a barrel amid new geopolitical tensions. This directly pressures consumers and complicates the inflation picture, making the Fed even less likely to act decisively. We should watch options on crude oil, as the duration of this price shock is a critical unknown for the market. The Fed has made it clear that rate hikes are not being considered, but the choice is now between cutting rates immediately or waiting for more information. This “wait and see” stance means markets will react sharply to every incoming data point, from weekly jobless claims to the next inflation report. Expect sharp, sudden moves as new information shifts the odds of a policy change. Create your live VT Markets account and start trading now.

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