The ISM Services Prices Paid index in the United States was unchanged in April. It remained at 70.7.
The April ISM services prices paid figure coming in at a stubbornly high 70.7 confirms that inflation remains a significant problem. We see this as a clear signal the Federal Reserve will be forced to hold interest rates higher for longer than many anticipated. This persistence suggests that any market pricing for a summer rate cut is now highly unlikely.
Higher For Longer Rates
We should anticipate continued selling pressure on interest rate futures, particularly for contracts expiring in late 2026. Looking back at 2025, we saw a similar repricing when hot labor market data erased expectations of early-year cuts. We expect the implied yield on the December 2026 SOFR futures contract to continue its climb, as it has already jumped 20 basis points since the last hotter-than-expected CPI report which showed core inflation at 3.8%.
This environment makes protective put options on major stock indices like the S&P 500 look attractive as a hedge against a market downturn. Higher borrowing costs tend to compress corporate earnings and valuations, creating downside risk. The CBOE Volatility Index, or VIX, has already crept up to 17 from the low teens, indicating rising market anxiety.
Given the Fed’s likely hawkish stance relative to other central banks, we believe long positions on the U.S. dollar are warranted. This can be expressed by buying call options on the Dollar Index (DXY) or futures contracts on USD pairs against currencies with more dovish central banks. The DXY is already testing the 106 level, a multi-month high, and this data should provide further support.
