Federal Reserve Bank of Chicago President Austan Goolsbee discussed the US economy in a Fox TV interview. He noted that hard data remains solid, indicating underlying strength despite current uncertainties.
Goolsbee contrasted this with soft data, which shows a decline in confidence. He addressed concerns over tariffs as a supply shock that might influence costs and consumer behaviour.
Concerns About Inflation Returning
There is apprehension about returning to the inflationary environment experienced in 2021 and 2022. Businesses seeking certainty for investment are finding it challenging amid the rapid changes in data.
Goolsbee’s observations highlight a widening gap between quantifiable economic performance and public perception. When he refers to “hard data,” he’s pointing to measurable indicators like job growth, consumer spending, and manufacturing output — metrics that, in recent weeks, have continued to show consistent if unspectacular resilience. These figures suggest the economy is not veering off course, even as concerns about inflation reappear at the margins.
In contrast, the “soft data” — sentiment surveys and business confidence indicators — are hinting at creeping anxiety. Lower expected demand and fear of future policy missteps often affect these readings. For those engaged in leveraged positions, it matters not only what the data says, but how others are likely to interpret and respond to that information. Anticipation has a way of shaping forward pricing, regardless of realised outcomes.
The comments around tariffs were not incidental. Supply constraints aren’t just logistical quirks these days — they’ve become a meaningful input within cost structures. When Goolsbee frames them as a “supply shock,” he’s implying a dynamic where prices could rise before wages or productivity adapts. For us watching derivative pricing models, this introduces non-linear risk. Short-dated volatilities may remain subdued while longer expiries become more sensitive.
Implications For Policy And Market Strategy
There’s also a deeper undercurrent. The reference to 2021-22 inflation episodes isn’t so much a warning as a signal that the policy reaction function might shift more suddenly than expected. If inflation expectations begin to drift upward due to exogenous shocks — such as tariffs or energy input changes — implied forward rates will not remain as stable. Options skew could flatten or invert accordingly, depending on how forward-looking desks recalibrate their inflation hedges.
The final line regarding business investment is perhaps the most actionable. Variability in forward guidance and inconsistent readings mean that model reliance must be checked against qualitative drivers. Goolsbee notes that businesses are struggling to plan with conviction — and from our seat, that means risk premiums on longer-dated corporate exposures might widen. For those running delta-neutral books, the key adjustment is to stress-test outer scenarios more aggressively.
In the coming weeks, we expect that implied volatilities at the front end will remain soft unless labour data surprises to the downside. However, convexity strategies around mid-curve expirations may offer asymmetric payoffs. Calendar hedges spaced across two key FOMC communications could offer an effective way to trade around headline risk without being overexposed to binaries.
It’s not just the data that’s shifting — it’s the context in which that data is being interpreted. That distinction matters now more than usual. We do well to remember that.
