US core personal consumption expenditures (PCE) prices rose by 0.4% month on month in February. The result matched forecasts.
The release points to steady monthly price growth in core consumer spending items. The data is part of the US PCE price index series.
Inflation Stays Sticky
The February Core PCE data confirmed that inflation remains persistent, meeting expectations at a 0.4% monthly increase. This reinforces our view that the Federal Reserve will maintain its “higher for longer” interest rate policy. We are now pricing out any significant probability of a rate cut before the late summer or early autumn of 2026.
This outlook was further cemented by the March jobs report released last week, which showed the economy adding a surprisingly strong 280,000 jobs. Consequently, traders in the SOFR futures market have almost fully erased bets on a June rate cut. Options activity shows a growing number of positions that will profit if rates remain at their current levels through July.
In equity derivatives, this backdrop suggests continued pressure on interest-rate-sensitive sectors like technology and real estate. We have seen the VIX, a measure of expected market volatility, drift higher from the low teens to a range around 18. This makes strategies like selling call spreads on tech indices or buying protective puts more attractive in the coming weeks.
This is a very different environment from what we saw for parts of 2025, when the disinflationary trend seemed to suggest imminent rate cuts. The current dynamic is providing a strong tailwind for the U.S. dollar. We anticipate continued demand for dollar call options, particularly against currencies whose central banks have already begun to ease policy.
March CPI Takes Center Stage
All eyes will now turn to the March CPI data, which is the next major catalyst for the market. A reading that comes in above expectations would likely trigger another wave of selling in bonds and equities, pushing rate cut expectations even further out. Traders should position for increased volatility around that release.
