RBC Economics expects only minor changes to the US outlook. The near-term unemployment forecast is slightly lower, while the 2026 annual average still sits at 4.5%. Stronger-than-expected US GDP growth in the second half of 2025 appears to be driven by higher productivity, not by more hiring or longer hours. Early-2026 signs of a stabilising labour market have also eased fears of further weakening.

Data Delays And Inflation Signals

A partial US government shutdown has delayed annual benchmark population updates used in unemployment data, as well as the January Consumer Price Index release. Business surveys point to rising prices, and core goods inflation is expected to pick up further into Q2. The Federal Reserve is expected to keep policy unchanged in 2026, while leaving room for rate cuts later from current levels. The Fed held rates steady in January and is continuing with a meeting-by-meeting approach. Chair Powell said rates are “loosely neutral or somewhat restrictive” and noted that earlier cuts should balance risks on both sides of the Fed’s mandate. The fed funds target range is expected to stay at 3.5%–3.75% through 2026. Uncertainty around protectionist US trade policy remains, and earlier tariffs may still be feeding through with a lag. A US Supreme Court ruling on the legal status of IEEPA tariffs could change assumptions about tariff pass-through and, in turn, the outlook for core goods inflation.

Trading Approaches In A Steady Rate Regime

With the Federal Reserve expected to hold rates steady, we see opportunities in strategies that benefit from low interest-rate volatility. The fed funds range will likely stay between 3.5% and 3.75% for the rest of 2026, which should keep short-term rates relatively predictable. Selling near-term options on SOFR futures could be a way to collect premium, as long as economic data—such as last week’s steady 185,000 jobs added in January—does not force a shift in policy. Even so, major uncertainty remains just below the surface, so it may be sensible to buy protection against sharp moves. The CBOE Volatility Index (VIX) has been trading in a tight band near 14, which looks relatively cheap given the upcoming Supreme Court ruling on IEEPA tariffs and the delayed January CPI report. Buying VIX call options or out-of-the-money puts on major indices can offer a relatively low-cost hedge against a potential shock in the coming weeks. We expect equities may remain range-bound for now, pulled between stable rates and rising inflation concerns. This kind of market suits iron condors on the S&P 500, which can profit if the index stays within a defined price range. The January Producer Price Index, which rose an unexpected 0.5%, supports our view that core inflation will firm into the second quarter, making this a trade best suited to a shorter time window. Further out, the nomination of Kevin Warsh to take over as FOMC Chair in June adds a clear communication risk. Implied volatility is already slightly higher for options dated June and later, reflecting that transition. Traders should factor in the communication style Warsh may bring when building positions that run into the second half of the year. The Fed’s wait-and-see approach reflects the productivity-led GDP growth in the second half of 2025, which did not overheat the labour market. Since rates are described as “loosely neutral,” the bias still leans toward an eventual cut rather than a hike. This underlying dovish tilt suggests that in a sharp market sell-off, the Fed is more likely to support markets than to tighten policy. Create your live VT Markets account and start trading now.

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