The US consumer price index (CPI) will be released at 8:30 am Eastern time on Wednesday, June 11, 2025. Analysts expect both headline and core inflation rates to rise compared to the previous month. Experts believe core inflation in the US increased in May, staying well above the 2% target. Deutsche Bank has warned that higher Federal Reserve rates could last longer, which would create risks for US borrowers. Citi shares this view, expecting interest rates to remain high for an extended time. They now predict a Federal Reserve rate cut in September instead of in July as previously thought. Recent data suggests inflation is not easing as much as hoped. If the May figures match predictions, they will show continued price pressures instead of the cooling many in the markets expected. A monthly rise in core inflation, especially after a series of flat readings, raises concerns that policy tightening may take longer than anticipated. Deutsche’s analysis reminds us that interest costs for sectors dependent on short-term funding may hinder economic activity. With base rates already limiting liquidity, both business and consumer borrowing behavior could be impacted simply by the expectation of ongoing high borrowing costs. Initially, this monetary tightening cycle was thought to be sharp but brief, but that view is changing. Citi’s change in the expected timing of the rate cut—from July to September—indicates a shift away from earlier hopes. Markets had started to believe that earlier policy easing could be possible, especially after signs of a slowing labor market and decreased spending. However, if core prices are rising again, the Fed has less flexibility. What’s important now, especially for short-term interest rate instruments, is precision. Sensitivity to small data changes will likely increase. Weekly jobless claims, retail sales, and supplier delivery times might cause more volatility than usual. These market conditions could lead to a re-evaluation of strike levels and expiries, particularly when market confidence is low but the potential for large moves is increasing. We are already seeing adjustments in the rates curve, with front-end implied yields rising. This makes short gamma positions unattractive unless well-hedged since the mix of low realized volatility and headline-driven spikes can be challenging. Trades with longer durations need to be selective, and those betting on steepeners might want to avoid too much optimism about the short end—especially ahead of next week’s CPI data. As for our approach, we should reassess our exposure around FOMC pricing. Curve trades made earlier in the quarter may no longer match our risk goals. Strategies based on a July rate cut may need to be adjusted, especially with options expiry coming closely before potentially significant data releases. Positioning ahead of CPI now looks more strategic rather than thematic. Those anticipating a Fed pivot may have to wait longer, making trades sensitive to duration or issuance news more vulnerable than usual. A steady and cautious approach may be better through the end of the month.

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