The United States Redbook Index (year-on-year) rose to 7.2% on 13 February. It was 6.5% in the previous reading.
This jump to 7.2% suggests consumer spending is still running hot. That is not helpful if we expect inflation to cool. It also means the economy has more strength than many expected.
Consumer Demand Remains Strong
This figure is not happening in isolation, which makes it more useful for trading decisions. The official retail sales report released on February 15 also beat expectations. It showed sales rising 0.9% in January, versus forecasts of 0.4%. Last week’s January inflation report also surprised to the upside, coming in at 3.3%. Together, these reports point to the same message: demand is still strong.
Because the data has been strong, markets are quickly cutting back expectations for Federal Reserve rate cuts. In derivatives markets, the odds of a rate cut at the Fed’s March meeting have fallen to under 15%, down from over 50% just a few weeks ago. We should now assume rates may stay higher for longer.
We saw something similar in the second half of 2025. A run of strong data pushed the Fed to signal later cuts, which drove bond yields up and weighed on stocks. That history suggests we should be ready for a similar market reaction now.
Over the next few weeks, it may make sense to position for fewer rate cuts than the market previously priced in. One approach is to use options on SOFR futures that benefit if rates stay elevated into the summer. Another is to consider put options on 10-year Treasury Note futures (ZN), which could gain if strong data keeps pushing bond prices down.
Strategies For Higher Longer Rates
A strong consumer alongside high rates creates uncertainty. That often leads to choppier markets. In that environment, buying call options on the VIX index can be attractive. This trade can benefit if volatility rises as the market tries to price the Fed’s next move.
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