Several measures of U.S. inflation showed signs of rising in June. This makes it harder for the Federal Reserve to decide on possible interest rate cuts. The Dallas Fed’s trimmed mean PCE, which leaves out extreme price changes, increased by 3.4% on an annual basis in June. It also rose by 2.7% year-over-year, slightly higher than in previous months. The Cleveland Fed’s median PCE also went up, reaching a 3.6% annualized rate, compared to 2.5% in May. Its 12-month increase was 3.15%, just above last month’s 3%. A third measure, the market-based core PCE index, which excludes certain prices, went up by 0.29% in June, with a 2.6% year-over-year rise. This is the highest since March 2024.

Firmer Inflation Readings

These stronger inflation readings suggest ongoing price pressures that are not reflected in the main data. The Federal Reserve will closely examine these trends in upcoming meetings. The Federal Reserve is paying attention to where inflation is heading. Last month’s data explains why they aren’t rushing into rate cuts. The Dallas and Cleveland Fed’s inflation reports for June were hotter than expected, indicating that underlying price pressures are more persistent than many thought. This stubborn inflation is occurring alongside a robust jobs market, which gives the Fed less reason to hurry. The latest report for July 2025 shows the unemployment rate steady at 4.0%, with job growth continuing. This mix of factors supports a “higher for longer” interest rate policy.

Market Implications

Traders should reconsider expectations for quick rate cuts and look closely at interest rate derivatives. The market had been anticipating cuts for later this year, but that now seems unlikely. This environment could present opportunities in SOFR futures for those betting that rates will stay high through the end of 2025 and into early 2026. This situation could hinder stock prices and might limit the market’s recent upward trend. We saw in 2022 how a determined Fed can put pressure on equities, making protective put options on indices like the S&P 500 a smart choice. The growing uncertainty about the Fed’s future actions will likely lead to increased volatility in the coming weeks. The CBOE Volatility Index (VIX) is currently trading around 13, a historically low level that suggests market complacency. Given the new inflation landscape, this low volatility may not last, making VIX futures or call options appealing. Additionally, selling call options against existing positions could generate income, assuming that the market’s potential for growth is now limited. Create your live VT Markets account and start trading now.

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