The United States core Personal Consumption Expenditures (PCE) Price Index rose 3.2% year on year in March. The result matched expectations.
With the March Core PCE inflation data coming in as expected at 3.2%, the immediate market reaction will be muted, but the underlying message is clear. Hopes for a rate cut by the Federal Reserve in June are now essentially off the table. We must now adjust our positions for an environment where interest rates remain higher for longer.
Higher For Longer
This steady, but still elevated, inflation reading will likely keep implied volatility supported in the coming weeks. The VIX, hovering around 17, is higher than the calmer periods we experienced through much of 2025, creating opportunities for premium-selling strategies. We see value in structures like iron condors on the S&P 500, which can profit if the market digests this news by trading within a defined range.
For interest rate futures, the path forward is to price out any significant easing until late in the third quarter at the earliest. The market is now pricing in less than a 15% probability of a rate cut before the September meeting, a stark shift from just a few months ago. We should look for opportunities to position for a flatter yield curve as short-term rates remain anchored by Fed policy.
Given that recent data showed the unemployment rate holding below 4% and first-quarter GDP growth at a solid 2.1%, the Fed has no incentive to lower rates. This economic resilience suggests a defensive posture in equity derivatives, favoring value-oriented sectors over rate-sensitive growth stocks. We are reducing exposure to speculative tech names that rely on cheaper borrowing costs for their valuation models.
