The United States core Consumer Price Index, seasonally adjusted, increased in January. It rose to 332.79 from 331.86 in the previous period.
This change indicates a month-on-month uptick in the core CPI measure. The figures cover January and are reported in index points.
Core Inflation Surprise
The January core inflation number came in hotter than anticipated, showing a 0.28% monthly increase. This development suggests underlying price pressures are not fading as quickly as we had hoped. Consequently, the market’s expectation for a Federal Reserve rate cut in the first half of the year is now being seriously questioned.
This inflation data is compounded by the recent labor market report, which showed robust job growth far exceeding forecasts with over 225,000 jobs added. When viewed together, these statistics paint a picture of an economy that may be running too hot for the Fed’s comfort. We saw a different picture through most of 2025, when data pointed towards a steady cooling trend.
We should anticipate the forward interest rate curve to reprice higher in the coming weeks. This means positions that benefit from delayed rate cuts, such as selling SOFR or Fed Funds futures for the summer contracts, become attractive. Expect interest rate volatility, as measured by the MOVE index which has been hovering near 95, to increase from these levels.
For equity markets, this data raises the risk of a downturn as discount rates are adjusted upward. We should consider buying protective puts on broad market indices like the SPX and NDX to hedge against a potential pullback. Implied volatility, measured by the VIX, is likely to trend upwards from its recent lows around 14, making long VIX positions viable.
Dollar Strength Scenario
A more hawkish Federal Reserve will likely strengthen the U.S. dollar against other major currencies. This outlook supports strategies that are long the dollar, potentially through call options on the U.S. Dollar Index (DXY). The narrative of a U.S. economic outperformance we saw in late 2025 seems to be gaining renewed momentum.
