In September, the United States Core Personal Consumption Expenditures – Price Index showed a year-on-year increase of 2.8%. This rate fell just below the forecasts, which anticipated a rise of 2.9%. <\/p>\n
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We’ve seen that the September Core PCE inflation report came in slightly below expectations at 2.8%. This continues the disinflationary trend observed throughout 2025, moving closer to the Federal Reserve’s 2% target. It reinforces the view that the aggressive rate hikes of 2023 and 2024 have effectively cooled the economy.<\/p>\n
This softer inflation print makes a hawkish surprise at the upcoming December Federal Reserve meeting highly unlikely. We are seeing fed funds futures markets react accordingly, now pricing in an over 80% probability of a rate cut by the March 2026 meeting. This shifts the focus from *if* the Fed will cut to *when* and by how much.<\/p>\n
Market volatility, as measured by the VIX index, has fallen to around 14, reflecting a growing consensus that the worst of the rate uncertainty is behind us. For derivatives traders, this low implied volatility environment may present opportunities in selling options premium. Strategies like selling cash-secured puts on interest-rate sensitive stocks could be considered to capitalize on this stability.<\/p>\n
We should also watch the U.S. 2-year Treasury yield, which has already dipped below 4.1% in response to the cooling inflation data. This downward pressure on short-term rates suggests that trades anticipating a flatter or even inverted yield curve may lose their appeal. Traders might instead look at options on Treasury futures to position for a continued decline in yields heading into the new year.<\/p>\n
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