The Chicago Fed National Activity Index rose to 0.18 in December. It was -0.04 in the previous month.
The increase was 0.22 points, based on the move from -0.04 to 0.18. The index is a measure of overall US economic activity.
December Activity Rebound
That December 2025 data showed a welcome rebound in economic activity, moving the index from negative territory to a solid positive reading. At the time, we saw this as a sign that the economy was entering the new year with stronger-than-expected momentum. This initially suggested that fears of a sharp slowdown were overblown.
However, recent data from this month has complicated the picture, as January’s Consumer Price Index came in hotter than anticipated at 3.3%, reviving inflation concerns. This has made the Federal Reserve’s path less clear, with markets now pricing in less certainty about rate cuts in the first half of the year. The strength we saw at the end of 2025 may have contributed to this persistent price pressure.
The Q4 2025 GDP, reported last month, confirmed this late-year strength by posting a 2.7% annualized growth rate. Despite this, weekly jobless claims have ticked up for three consecutive weeks, hinting that the labor market may finally be cooling in early 2026. This creates a conflicting narrative between past strength and emerging signs of a slowdown.
For traders, this signals a period of heightened volatility, as the market digests strong historical data against weaker forward-looking indicators. Options strategies that benefit from price swings, such as long straddles on the SPX, could be considered as the VIX has climbed from its January lows. The conflicting data points mean we are likely to see sharp reactions to upcoming releases.
Rates Volatility Trading Focus
This uncertainty directly impacts interest rate expectations, creating opportunities in derivatives tied to the SOFR. The MOVE index, a measure of bond market volatility, has risen over the past two weeks, reflecting the market’s indecision on the Fed’s next steps. Trading this uncertainty may be more prudent than taking a directional bet on rates.
