Macro & Volatility™
Macro & Volatility™ #4: Higher Rates, Higher Growth, Higher VIX?
Jun 16, 2024
Exploring the effects of rising interest rates on the VIX and equity options market, historical trends of buying calls in the 90s market, the challenges for the Federal Reserve in managing volatility levels, and the constraints on future easing measures due to stubborn inflation levels.
09:26
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Quick takeaways
- Higher interest rates lead to increased volatility in equity options and VIX.
- Potential Fed policy shift towards higher rates may signal prolonged market adjustment period.
Deep dives
Impact of Rising Rates on Volatility Markets
The podcast discusses the impact of rising interest rates on volatility markets, particularly in relation to recent economic data like CPI and PPI reports indicating higher inflation and wage gains. As rates climb, the VIX and equity options experience increased realized volatility, implied correlation, and prices. Higher implied volatilities such as those seen in Nvidia reflect market reactions to changing economic conditions, leading to a shift in the dynamics of the Fed put and requiring a reevaluation of options pricing.
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