Key Data Releases This Week
CPI is due on Wednesday and core PCE on Friday, with both reports released in the same week. The personal income and spending report on Friday will also provide January’s core PCE reading. Based on earlier CPI and PPI data, core PCE inflation is projected to rise 0.42% month on month, up from 0.36% previously. This would lift the year-on-year core PCE rate by about a tenth to 3.1%. We are seeing a familiar pattern of stubborn inflation that recalls the challenges from early last year. Looking back to February 2025, we saw forecasts where firmer headline CPI was expected due to energy prices, a situation that tested the Federal Reserve’s resolve. That period, when core PCE was forecast to climb to 3.1%, showed us that the path to lower inflation would not be a straight line. The latest data from last month, February 2026, confirms this trend, with headline CPI coming in at 3.2% and core inflation holding at 3.8%. This persistence was underscored by the most recent core PCE reading for January 2026, which remained at 2.8%, significantly above the Fed’s 2% target. These figures have dashed hopes for an imminent policy pivot from the central bank.Market Repricing And Trading Implications
Consequently, the market has aggressively repriced expectations for the Federal Reserve’s actions this year. We have seen the probability of a rate cut before June, as implied by Fed funds futures, collapse to under 35%. The prevailing view is now that any easing will be pushed into the third quarter at the earliest. For derivative traders, this environment suggests it is prudent to position for sustained higher interest rates and potential volatility. This involves considering strategies like buying options on SOFR futures to hedge against rates remaining elevated for longer than previously anticipated. It also makes purchasing VIX call options attractive ahead of key data releases and FOMC meetings. We should remember the lesson from early 2025, when a similar dynamic was unfolding. The expectation then of core PCE accelerating by 0.42% month-on-month was a crucial signal that the final mile of disinflation is the most difficult. That period proved that premature bets on rate cuts can be costly when the data does not cooperate. All attention now shifts to the upcoming March FOMC meeting in two weeks’ time. We will be closely monitoring the committee’s updated economic projections and dot plot for any change in their outlook. Their guidance will be critical in setting market direction for the second quarter. Create your live VT Markets account and start trading now.
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