The United States Consumer Price Index excluding food and energy rose by 0.3% month on month in January. This matched the forecast of 0.3%.
The figure refers to so-called core inflation, which strips out food and energy prices. It shows the monthly change in prices for a broad basket of goods and services.
Core Inflation Meets Expectations
With today’s core inflation figure for January coming in at 0.3%, exactly as anticipated, a major source of market uncertainty has been removed for now. This confirms our view that disinflation is continuing on a slow and steady path, but not at a pace that would force the Federal Reserve’s hand. In the near term, this should calm bond market volatility and support a “business as usual” environment.
This in-line data effectively takes a March rate cut off the table, with Fed funds futures now showing less than a 20% probability of a move next month. We see this as reinforcing the “wait-and-see” approach the Fed communicated after its last meeting, pushing the likely start of any easing cycle to May or June at the earliest. This is a notable shift from the more optimistic timelines we were pricing in during the fourth quarter of 2025.
For derivatives traders, the immediate impact is a likely decline in short-term implied volatility, as the CBOE VIX Index is already trading below 15 this morning. This presents an opportunity to sell premium on broad market indices, as the risk of a major policy surprise in the coming weeks has been significantly reduced. Look for range-bound trading in the S&P 500, making strategies like iron condors more attractive.
Looking back, this steady reading provides a welcome contrast to the inflationary jitters we experienced in the fall of 2025, when a couple of unexpectedly high prints briefly sent yields soaring. The current data validates that the underlying trend is still heading downward, just not in the straight line some had hoped for. The path to 2% inflation remains a grind.
Attention Shifts To Next Data
Our focus now pivots to upcoming labor market and retail sales data to gauge the economy’s underlying strength. If the unemployment rate, last reported at 4.1%, remains stable, it will give the Fed even more room to stay patient. We should consider positioning for a continued “higher for longer” scenario, perhaps through options on interest-rate sensitive ETFs.
