Stephen Miran, a Federal Reserve member, said inflation expectations have not yet changed due to higher oil prices. He said there is no evidence of an inflation shock from oil. He said there is no evidence of a wage-price spiral, and that this outcome seems extremely unlikely. He also said wage growth has been coming down.

Fed Signals Remain Dovish

Miran said he sees no sign that other Fed colleagues are changing their views because of oil prices. He added that markets are volatile in the middle of a war and he is not inclined to read much into market moves. He said he remains concerned about the labour market, while noting the Fed can accommodate that. He said the Fed is holding back labour demand inappropriately. He said policy could be about a point easier over the course of the year. He said inflation is heading back to target a year from now. Based on these comments, we believe the Federal Reserve may be more inclined to ease policy than the market currently expects. The view that the Fed is holding back labor demand too much suggests a dovish pivot could be on the horizon. This creates a clear opportunity for traders positioned for lower interest rates. The labor market data from earlier this month supports this perspective. The February 2026 jobs report showed wage growth slowing to a 3.8% annual rate, continuing a cooling trend we saw develop throughout 2025. This weakens the case for keeping rates high to fight a wage-price spiral that has not materialized.

Trading Implications For Rates

Despite Brent crude prices holding firm around $95 per barrel due to ongoing geopolitical conflict, there is little evidence of this feeding into broader inflation. The latest CPI reading for February 2026 came in at 2.8%, showing that core inflationary pressures are easing as we had hoped. This gives the Fed cover to look past energy volatility and focus on the softening labor market. In the coming weeks, traders should consider positions that will benefit from a downward shift in short-term interest rate expectations. Interest rate futures and options markets are currently only pricing in about two quarter-point cuts for the rest of 2026. These dovish remarks suggest the potential for a full percentage point of easing, presenting a clear discrepancy to trade against. Given the acknowledgement of market volatility from the war, using options may be a prudent strategy. Buying call options on Treasury futures or receive-fixed interest rate swaps allows for upside exposure to falling rates while defining downside risk. The high volatility may increase option premiums, but it also reflects the potential for a sharp market repricing if the Fed does signal a more aggressive easing cycle. We should also watch the yield curve closely, as it is likely to steepen if the Fed begins cutting rates. A classic trade would be to position for a wider spread between 2-year and 10-year Treasury yields. This can be done through futures spreads, anticipating that short-term rates will fall much faster than long-term ones once the Fed officially pivots. Create your live VT Markets account and start trading now.

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