US average hourly earnings rose by 0.2% month on month in March. The forecast was 0.3%.
The outturn was 0.1 percentage points below expectations. This data point tracks changes in workers’ hourly pay from one month to the next.
Implications For Inflation And Fed Policy
The weaker-than-expected wage growth for March 2026 suggests inflationary pressures are easing. This could give the Federal Reserve more reason to consider an interest rate cut sooner than previously anticipated. We are therefore adjusting our view toward a more dovish monetary policy stance in the second half of the year.
This outlook may lead to a decrease in market volatility, potentially pushing the VIX index below its recent average of 14. We saw a similar pattern in early 2025, where softer labor market data preceded sustained rallies in equity markets. Traders might consider buying call options on the S&P 500, anticipating that lower rate expectations will boost stock valuations.
The probability of a rate cut by the September 2026 FOMC meeting has now likely increased, with data from the CME’s FedWatch Tool showing futures markets pricing in over a 65% chance, up from 50% last week. We anticipate increased buying pressure on interest rate futures, particularly those tied to the Secured Overnight Financing Rate (SOFR). This is a direct way to position for a lower policy rate by year-end.
Looking back, the market’s reaction to cooling inflation data throughout 2025 provides a clear historical model for the current environment. During that period, each soft jobs or inflation report was met with a rally in Treasury bond futures as yields fell. We believe a similar strategy of positioning for lower yields could prove effective now.
A less aggressive Federal Reserve stance will likely weigh on the U.S. dollar. The Dollar Index (DXY) has been trading in a tight range near 104.0, and this news could be the catalyst for a breakdown below that level. We see opportunities in using derivatives to gain long exposure to currencies like the Euro or Japanese Yen against the dollar.
Key Risks And Upcoming Confirmation
However, we must see if this trend is confirmed by the upcoming Consumer Price Index (CPI) report for March. If core inflation, which has been hovering just under 3.0%, also prints below expectations, it would solidify the case for a more dovish Fed. A surprisingly high CPI reading would quickly unwind today’s reaction and reset market expectations.
