US stock and bond volatility indexes fell to lows, market "quietly awaiting" Federal Reserve decision.

The fear index of Wall Street - the VIX index - is currently hovering near its lows since the beginning of the year, while the MOVE index has also reached its lowest level since the beginning of 2021. The state of the US economy has not surprised the market, with the inflation report released on Friday meeting expectations, and traders expecting the Fed to cut interest rates next week. Although the market is currently relatively calm, some experts warn that if Fed officials show signs of disagreement or adopt a stronger tone, it could trigger more volatility, and concerns about weakness in the labor market are also growing. Just a few weeks ago, every speculative market volatility in the market increased people's concerns: cryptocurrencies plummeted in price, AI-related stocks surged then fell, and there was a brief increase in volatility in the stock and credit markets. But now, the panic quickly subsided. The latest dominant trend in trading in 2025 has been reestablished: betting on risk assets with low volatility and high confidence, while the US economy continues to move forward. The "VIX" index, which measures Wall Street market panic sentiment, is currently near its lows since the beginning of the year. The "MOVE" index, which tracks expected bond volatility, has just hit its lowest point since the beginning of 2021. Tail risk hedging measures have been lifted. Even Bitcoin has stabilized after a 30% drop. This speculative retracement continues to change, and the once loud bubble concerns are gradually quieting down. One of the reasons is that the current state of the US economy has not surprised anyone. The inflation report released on Friday met expectations. Traders expect the Fed to cut interest rates next week, and even further rate cuts in 2026. However, at the same time, Fed officials have begun to diverge in their views on future trends. Mandy Xu, an analyst responsible for derivatives market intelligence at the Chicago Options Exchange, believes that this calm state is fragile. She said, "A divided Fed, or even a relatively aggressive rate cut, could become the catalyst for increased market volatility at the end of the year. The largest market volatility since April occurred after the last Fed meeting, when Powell's comments were more hawkish than expected." Recent economic data may further exacerbate policymakers' differences. On Friday, the latest data on the inflation indicator favored by the Fed rose by 0.2%, keeping the year-over-year data below 3% - indicating that inflation pressures are stable but stubbornly present. Concerns about weakness in the labor market are also growing, with ADP Research Company reporting that layoffs by US companies in November reached their highest level since the beginning of 2023. Economists expect a split vote next week, with St. Louis Fed President Alberto Mussalem possibly dissenting along with Kansas City Fed President Jeff Schmidt. Fed board member Stephen Milan is expected to say that a 25 basis point rate cut is too small - highlighting the increasing divergence in views on the future direction of Fed monetary policy. Priya Misra, a portfolio manager at JPMorgan Asset Management, added that this low volatility reflects people's confidence in "policy safeguards" and the recognition that the economy still has resilience, but she also warned that this situation could change rapidly. She said, "What could change this situation is a clear improvement in the labor market - employment data may reflect greater economic recession risks, which are currently not fully factored in by the market. Another risk for bulls is a Fed that is stern and divided, seemingly concerned about inflation." Despite these risks, the S&P 500 index rose by 0.3% this week, approaching its historical high, while the Nasdaq 100 index rose by 1%. Bitcoin performed best on Tuesday, although it has depreciated by nearly a third since October last year, there has been a recent rebound. An index designed by Bank of America to track broad asset class risks has fallen into negative territory and is now hovering near levels before the Fed began raising interest rates. Investors are flocking to the peaceful trading sector - US stock funds have seen inflows for twelve consecutive weeks - while the White House is also preparing new tariff measures in case the Supreme Court modifies trade policy provisions. However, not all signs of caution have disappeared. According to a research report by Bank of America (citing data from EPFR), this year investors poured the largest amount of funds into money market funds in a single week. Tail risk hedging products such as the Cambria Tail Risk ETF performed slightly well in 2025, but despite the volatility in November and April, they failed to sustain substantial gains. The measure of demand for tail risk insurance has approached its lowest level of the year after a significant increase. Mike Zigmont, co-head of trading and research at Visdom Investment Group, said, "The disaster triggered by Bitcoin seems to be gradually easing, the Fed is highly likely to cut interest rates by 25 basis points, and economic data also indicates a stabilizing situation. The cost of buying put options at any time when everything seems normal will be psychologically more challenging."