There is no clear path for Fed Chair Jerome Powell in today’s FOMC (Federal Open Market Committee) meeting.
The headline Consumer Price Index reached its peak of 9% in June of 2022 and has been slowly dropping. Unfortunately, the drop is not fast enough and is not even within the same zip code as the 2% inflation target. Making matters worse for the Fed, unemployment is still at a cool 3.6% despite recent, high-profile layoffs in the technology industry. Inflation is notoriously sticky and likely will not roll over so easily.
The last time the U.S. beat back inflation was in the 70s, when then Fed Chair Paul Volker took inflation to the woodshed and raised rates to 20%. Those of us old enough to remember 18% home mortgages know this plunged the economy into a recession we will not soon forget.
There are those that say this time is different, as the catalysts for inflation are not the same and maybe we can have a soft landing.
What can we expect from today’s interest rate announcement?
The Fed will try to thread the needle of being tough on interest rates while considering the undercurrent of mild panic many are experiencing as they wonder if their money is safe in their local banks.
One thing is for certain: no matter the decision, the losers will be the American taxpayers. Raising rates makes it harder for the U.S. to pay its debt and the manufactured increase in unemployment will just increase the U.S. government’s unfunded liabilities. At the same time, unemployment will decrease revenue coming into the IRS.
All is not lost, however, as there are some short-term strategies designed to take advantage of the uncertainty and volatility these events generate. Savvy institutional and retail traders will take advantage of this opportunity and leverage some simple options strategies like strangles and straddles. By the time Powell is done speaking, many traders will walk away with a tidy sum. Those people are looking forward to the FOMC meeting.
~Andreas Nikas
Contributor