The United States Consumer Price Index (CPI) year-on-year was 3.3% in March. This matched the forecast of 3.3%.
The release indicates inflation compared with the same month a year earlier. The figure provides a reference point for price trends in the US economy.
With the March Consumer Price Index coming in exactly as expected at 3.3%, the element of surprise has been removed from the market. This confirms that inflation remains sticky and well above the Federal Reserve’s 2% target. For us, this solidifies the view that the Fed will remain on hold, pushing back any expectations of a near-term interest rate cut.
Traders should now be pricing out a potential rate cut for the June meeting, which was a real possibility just a few weeks ago. The CME FedWatch Tool has likely seen probabilities for a June cut plummet from over 50% to below 25% on this news. We should consider positioning in SOFR futures to reflect a flatter curve, as the market digests that borrowing costs will not be easing soon.
For equity derivatives, this creates a cap on the S&P 500’s upward momentum. While the in-line print prevents a major sell-off, the prospect of sustained high interest rates is a headwind for corporate earnings. We believe selling out-of-the-money call spreads on the SPX index is a prudent strategy to capitalize on range-bound trading in the weeks ahead.
This situation feels very similar to what we experienced in the first half of 2024, when stubborn inflation data repeatedly forced the market to delay its rate cut forecasts. During that period, volatility remained elevated and broad market indices struggled to make new highs for months. History suggests that a period of consolidation is more likely than a breakout rally from here.
In the currency space, this data provides strong support for the U.S. dollar. Higher yields for a longer period make the dollar more attractive than currencies like the euro or yen, where central banks are more dovish. We expect the U.S. Dollar Index (DXY), which has already gained over 2% this year, to test its highs from late 2025.
