US personal consumption expenditures (PCE) inflation was 3.5% year on year in March. This matched forecasts.
The reading describes the annual change in prices paid by US consumers. It is one of the measures used to track inflation.
Market Reaction And Next Catalyst
With the March PCE inflation report coming in exactly as expected at 3.5%, a major source of market uncertainty has been removed for now. We shouldn’t anticipate a significant, sudden price shock in either direction based on this news. The market’s focus will immediately pivot to the next major catalyst, which is the upcoming jobs report.
This lack of surprise suggests that implied volatility in options markets will likely fall in the near term. For traders, this makes strategies that profit from sideways movement and time decay, known as selling premium, more attractive. We see this reflected in the VIX, a key gauge of market fear, which has already dipped below 14 this week as this in-line inflation print was widely anticipated.
The 3.5% reading is still significantly above the Federal Reserve’s 2% target, meaning we should not expect any talk of interest rate cuts. This reinforces the “higher for longer” interest rate narrative that has been building for months. Derivatives that track interest rate expectations, such as SOFR and Fed Funds futures, will likely continue to price in a holding pattern from the Fed through the summer.
Looking back at the sharp market pullback in late 2025, we were reminded that hoping for early rate cuts can be a painful trade when inflation proves stubborn. Recent data from the CME FedWatch Tool shows the market is now pricing in less than a 20% chance of a rate cut by the July meeting, a stark drop from the 60% chance priced in at the start of the year. This data validates a cautious stance on rates.
Positioning For A Range Bound Period
Therefore, for the coming weeks, the prudent approach involves positioning for a range-bound market while awaiting the next major data release. A surprisingly strong or weak jobs report will be the event that breaks the current calm. Until then, we should be prepared for lower volatility and capitalize on strategies that benefit from it.
