The US producer price index excluding food and energy rose 3.8% year on year in March. The forecast was 4.2%.
This reading was below expectations. It refers to producer price changes that exclude food and energy.
Core PPI Signals Cooling Inflation
This lower-than-expected 3.8% Core PPI reading is the first major sign that inflationary pressures are finally breaking. It directly challenges the “sticky inflation” narrative that has kept the Federal Reserve on hold throughout the start of 2026. We see this as a leading indicator that the upcoming Consumer Price Index may also show signs of cooling.
This data point significantly alters the outlook for Fed policy, making a pivot away from their hawkish stance more likely in the second half of the year. We remember how stubbornly high producer prices in 2022 preceded the most aggressive rate hikes in decades, and this reversal is a powerful signal. The market is now pricing in a greater probability of a rate cut, with CME Group data showing the odds of a September rate cut jumping from 35% to nearly 60% following the report.
For interest rate traders, this suggests positioning for lower rates ahead is now the primary strategy. We should anticipate a continued rally in Treasury futures, meaning buying calls on ZN (10-Year Note) or ZB (30-Year Bond) futures could be profitable. Selling out-of-the-money calls on SOFR futures is another way to express the view that the peak in rates is firmly behind us.
In equity markets, this disinflationary signal acts as a strong tailwind, especially for technology and growth stocks sensitive to interest rates. We expect to see bullish positioning in Nasdaq 100 and S&P 500 derivatives, such as buying call spreads to finance upside exposure. The VIX index has already fallen 12% to 14.5 on this news, suggesting traders can look to sell volatility as fears recede.
Dollar Weakness And FX Positioning
This changing Fed outlook will likely translate to weakness for the U.S. dollar. The Dollar Index (DXY) has already broken below the key 104 level, testing its lows for the year. This opens the door for traders to buy calls on foreign currencies against the dollar, such as the euro or the Japanese yen.
