US personal consumption expenditures (PCE) price index inflation rose by 2.9% year on year in December. This was above the forecast of 2.8%.<\/p>\n
The reading was 0.1 percentage points higher than expected. The data point indicates inflation ran slightly hotter than markets had predicted.<\/p>\n
With the December 2025 inflation data coming in higher than anticipated, we must adjust our view on the Federal Reserve’s path. This unexpected strength in the Personal Consumption Expenditures index suggests inflation is proving stickier than many had hoped. Consequently, the likelihood of an early 2026 interest rate cut is now significantly lower.<\/p>\n
We are seeing this repricing in interest rate futures, which now imply a much lower probability of a March rate cut than they did just weeks ago. For instance, the market is now pricing in less than a 40% chance of a cut by the Fed’s March 2026 meeting, down from over 75% at the start of the year. This shift suggests positioning for a “higher for longer” rate environment is the prudent move.<\/p>\n
This outlook supports using derivatives to hedge against or profit from increased market volatility. The CBOE Volatility Index (VIX) has already crept up to around 17 from its lows in late 2025, and this upward trend could continue. We are considering buying put spreads on major indices like the SPX to protect against a potential equity market downturn driven by sustained high interest rates.<\/p>\n
In the fixed income space, the data implies that yields on U.S. Treasuries may continue to rise as rate cut expectations are pushed further out. The 10-year Treasury yield has already climbed back above 4.15% in February 2026 in response to strong economic data. Traders should consider strategies that benefit from falling bond prices, such as shorting Treasury futures.<\/p>\n
This environment is also creating strength for the U.S. dollar, as a patient Fed contrasts with other central banks that may be closer to easing policy. The U.S. Dollar Index (DXY) has gained over 2% since the start of this year.<\/p>\n
We view call options on the DXY or related currency ETFs as a direct way to gain exposure to continued dollar appreciation in the coming weeks.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" US PCE inflation rose 2.9% year-on-year in December, above the 2.8% forecast, signaling slightly hotter prices.<\/p>\n","protected":false},"author":62,"featured_media":17025,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-42436","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/42436","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/comments?post=42436"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/42436\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/media\/17025"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/media?parent=42436"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/categories?post=42436"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/tags?post=42436"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}