US core personal consumption expenditures (PCE) price index rose 0.4% month on month in December. The forecast was 0.3%.
The result was 0.1 percentage points above the forecast. It shows core prices grew faster than expected.
Implications For Fed Policy
The higher-than-expected Core PCE data for December 2025 was an early sign that inflation was not easing as quickly as expected. It suggested the path back to the Fed’s 2% target could be bumpy. As a result, markets have had to rethink how soon the Federal Reserve might start cutting interest rates in 2026.
This worry grew after the January 2026 inflation report released last week. It showed core CPI still high at 3.1%. The labor market also remains strong. Together, these factors strengthen the case for the Fed to delay any policy easing. That makes the upcoming January PCE report, due at the end of next week, especially important.
Because of this uncertainty, interest rate markets may stay volatile in the coming weeks. The MOVE Index, which measures Treasury market volatility, has already reached its highest level since last October. Options strategies that benefit from volatility, not just market direction, may be useful.
Since the start of the year, the market has sharply reduced expectations for rate cuts. Fed funds futures now show only a 25% chance of a cut by the June 2026 meeting. That is down from 70% just six weeks ago. This change supports trades that assume rates stay higher for longer, such as buying puts on longer-duration bond funds.
This setup looks similar to early 2024. Back then, several strong economic reports quickly removed hopes for near-term rate cuts. The 2-year Treasury yield rose as markets moved closer to the Fed’s cautious stance. A similar move could be starting now if inflation continues to surprise on the upside.
Key Comparison With Early 2024
Create your live VT Markets account and start trading now.
here to set up a live account on VT Markets now
