2025.08.18 Weekly

Fed is stuck, but so are vols

It’s Jackson Hole this week – usually a time when we hear policy signals and though unlikely this time, and considering how the market is priced, fading the extremes is probably not a bad strategy this week on both ends of the USD and Sep/Dec cut expectation ranges.

Also, I do feel those expectations are a touch out of reality after catching up with last week’s data being far from ideal for what the market is currently pricing. Either it’s a positioning move and U25 shorts/hedges got squeezed, or it's just me that's out of touch with how I think the Fed is thinking about policy at the moment. That is, that the Fed is increasingly stuck between both sides of its dual mandate as price risks become more elevated; in fact the resilience of economic activity should allow them to shift their focus away from the labour market and more onto price risks and if so, markets are mispriced - albeit not by a whole lot.

Let’s dive in…