TD Securities said March core CPI surprised on the softer side and showed slower tariff pass-through after firmer January and February readings. The CPI “supercore” slowed to 0.18% month on month, a four-month low.
The team expects this to feed into a softer core PCE reading of 0.23% month on month in March. It said markets should not treat the March CPI as a clear shift towards easier policy because consumer prices had a strong start to the year.
March Cpi Read Through
TD Securities expects core inflation to pick up again in April. It cited strengthening airfares and a delayed rebound after an unusually soft October shelter reading.
The firm maintains its forecast of two 25 basis point Federal Reserve rate cuts in the second half of 2026. It said this is based on inflation moving back towards a more normal pace.
The article notes it was produced with the help of an artificial intelligence tool and reviewed by an editor.
We see the market’s initial reaction to the soft March core CPI as a potential overreach. While the moderation in tariff pass-through brought the supercore down to a four-month low of 0.18%, we believe this is a temporary dip rather than a new trend. It is too early to confidently price in a more aggressive Federal Reserve easing cycle based on this single report.
Trading Implications And Positioning
This view is supported by forward-looking data that points to a rebound in April’s inflation figures. Recent reports from major airlines show that average domestic airfares for May travel, booked in early April, have already climbed by 6% from the previous month. This, combined with the expected reversal from an unusually soft shelter print last October, will likely push the next core CPI reading higher.
For traders, this suggests that the current drop in front-end yields is an opportunity to fade. We think selling June and September 2026 SOFR futures could be a prudent move, as the market may be forced to price out the probability of an earlier rate cut once the April inflation data is released. The VIX dropping to 13.5 today seems too complacent given the underlying cross-currents in the data.
Looking back from our perspective in 2025, we saw a similar head-fake in the summer of 2023 when a single month of soft inflation data sparked a significant market rally. That rally proved short-lived as subsequent reports confirmed that the path to 2% inflation was not a straight line. We expect this experience to repeat, punishing those who extrapolate too much from today’s number.
Therefore, we believe a cautious stance is warranted over the next few weeks, with a focus on positioning for higher-for-longer rates in the near term. Buying cheap, short-dated volatility through options on equity indices or interest rate futures provides a hedge against a hawkish surprise. We still anticipate two rate cuts, but positioning for them now is premature as they remain a story for the second half of the year.
