The U.S. Consumer Price Index (CPI) excluding food and energy rose **0.3% month over month** in January. This matched the **0.3%** forecast. This measure is known as **core inflation**. It removes food and energy prices and tracks monthly price changes across a broad basket of goods and services. With January core inflation coming in at **0.3%**, exactly as expected, a key source of market uncertainty is now off the table. This supports our view that disinflation is continuing in a slow, steady way—but not fast enough to force the Federal Reserve to act. In the near term, this should ease bond market swings and support a “business as usual” backdrop. This in-line result also makes a **March rate cut** very unlikely. Fed funds futures now price **less than a 20%** chance of a cut next month. We think this strengthens the Fed’s post-meeting message to **wait and see**, and it likely pushes the first cut to **May or June at the earliest**. That is a meaningful shift from the more optimistic timing we were pricing in during **Q4 2025**. For derivatives traders, the near-term effect is likely **lower short-dated implied volatility**, especially with the **CBOE VIX Index** already trading below **15** this morning. That creates an opening to **sell premium** on broad equity indices, since the odds of a major policy surprise in the next few weeks have fallen. Expect more **range-bound trading** in the S&P 500, which makes strategies like **iron condors** more appealing. In context, this steady print is a welcome contrast to the inflation scares we saw in **fall 2025**, when a couple of hotter-than-expected reports briefly pushed yields sharply higher. Today’s data supports the idea that the underlying trend is still moving down—just not in the straight line some investors hoped for. Getting to **2% inflation** will likely remain a slow grind. Next, our attention shifts to upcoming **labor market** and **retail sales** data to judge the economy’s underlying strength. If the unemployment rate—last reported at **4.1%**—holds steady, the Fed has even more room to stay patient. Positioning should still allow for a **higher-for-longer** rate environment, potentially through options on **interest-rate-sensitive ETFs**.

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