The Fed may have pivoted - the wrong way

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But with the strength of the labor market it is clear that inflation may linger for much longer than expected, which is causing some bank officials to pivot, but just in the wrong direction – they’re fearful of the need to push rates even higher than previously anticipated. This means I expect market volatility to be shaken up a bit, which will lead to gyrations in options implied volatility – inflated premiums. And when implied volatility (IV) heats up, it can be a positive if you know which side of IV to be on. Our federal banks may have something to do with market volatility heating up soon. Fed Funds Rate vs The Neutral Rate – What it Means In the graph above you can see where the Fed’s neutral rate is by the blue line – approximately 2.5%. In order to curb inflation, however, we’re seeing the actual rate (green line) climb much higher than the neutral rate…and not only has the fed not reached their target rate yet, but the projection may become higher due to a strong labor market and stubborn inflation. With the increase in short-term interest rates, the yield curve remains inverted (short-term rates are higher than long-term rates), which is often a precursor to recessions, led by a severe market decline. And this can inevitably lead to an increase in market volatility and overvalued options premiums. Which leads me to the challenges I’ll be facing shortly. In fact, despite the challenges of our market and economy we’re facing, I’ve decided to give myself a challenge… [The Rocket Wealth Challenge]( You know I’ve had plenty of challenges in the trading world. I’ve gone from being forced to stop trading in order to pay back a brokerage margin call to selling a multi-million-dollar options training business, so I want to share with you one of the strategies that I’ve used with tremendous success to overcome past challenges. But for now we’re in the middle of a long weekend, and I hope you’re enjoying it. It’s moving day for me, of course, so I’ll be spending time moving from one office into another, temporary one… oh, the fun! After this weekend, however, I’ll be up for any and all challenges heading my way. I hope you’ll join me in my personal Rocket Wealth Challenge beginning this week… And be sure to join me for other trades and challenges that I’ll be discussing this coming Tuesday and Wednesday at 12:00 noon ET. Until then, Tom Gentile America's #1 Pattern Trader Join Tom each Monday through Wednesday at 12:00 p.m. ET as he discusses a range of strategies that can make money in a strained market environment. 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