The United States Redbook Index (year-on-year) increased to 7.2% on 13 February. It was 6.5% in the previous reading.
The recent jump in the Redbook index to 7.2% shows that consumer spending remains surprisingly hot. This strength is not what we want to see if we are expecting inflation to cool down. It suggests the economy has more momentum than many people thought.
Consumer Demand Remains Strong
This data point doesn’t stand alone, making it more credible for our trading decisions. The official government retail sales report released on February 15th also smashed expectations, showing a 0.9% increase for January when forecasts were for 0.4%. Combined with the January inflation report from last week that came in higher than expected at 3.3%, a clear pattern is emerging.
Because of this strong data, the market is quickly changing its mind about the Federal Reserve cutting interest rates. Looking at derivatives markets, the odds of a rate cut at the Fed’s March meeting have now plummeted to less than 15%, down from over 50% just a few weeks ago. We should now be operating under the assumption that rates will stay high for a longer period.
We saw a similar situation unfold in the second half of 2025. A series of strong economic reports at that time forced the Fed to signal it would delay its planned cuts, causing bond yields to spike and putting pressure on the stock market. This history suggests we should prepare for a similar reaction now.
For the coming weeks, we should consider positioning for fewer rate cuts than previously priced in. This could involve using options on SOFR futures that bet on interest rates remaining elevated through the summer. We should also look at buying put options on 10-year Treasury Note futures (ZN), as these would profit if strong economic data continues to push bond prices lower.
Strategies For Higher Longer Rates
The conflict between a strong consumer and high interest rates creates uncertainty, which typically means more market choppiness. This makes buying call options on the VIX index an attractive strategy. Such a trade would benefit from the increased volatility we expect as the market struggles to figure out the Fed’s next move.
