A Reuters poll of 103 economists shows a move towards expecting US interest rates to stay higher for longer, with possible easing pushed back.<\/p>\n
In the survey, 56 of 103 economists expect the Federal Reserve to keep the policy rate in the 3.5%\u20133.75% range at least through September. In a late March poll, most economists expected at least one rate cut by that point.<\/p>\n
Inflation forecasts have risen for the Personal Consumption Expenditures (PCE) Price Index. Economists now see PCE averaging 3.7% in Q2, 3.4% in Q3 and 3.2% in Q4.<\/p>\n
In the March poll, the same quarters were forecast at 3.3%, 3.1% and 2.9%. The new figures point to slower progress on inflation than previously expected.<\/p>\n
Even so, 71 of 103 economists still expect at least one Fed rate cut before year-end. This view rests on forecasts that inflation may ease later in the year.<\/p>\n
Looking back at the sentiment in 2025, we saw a significant delay in rate cut expectations as inflation forecasts were revised higher. At that time, the consensus shifted to the Fed holding its 3.5%-3.75% policy rate through the summer, a notable change from earlier predictions. This period taught us how quickly market expectations can be repriced based on new inflation data.<\/p>\n
That caution from 2025 was warranted, as core inflation proved stubborn and the Fed held rates steady into the new year. Today, we are in a similar situation, with the latest Core PCE data for March 2026 coming in at a persistent 2.8%, well above the Fed’s target. This has pushed the probability of a June 2026 rate cut, as implied by Fed Funds futures, down to just 35% from over 70% two months ago.<\/p>\n
For traders, this means interest rate volatility is likely to remain high, making options on SOFR futures a valuable tool. We should consider strategies like straddles or strangles, which can profit from a significant move in rates regardless of the direction. These positions capitalize on the market’s current uncertainty about whether the next major catalyst will be surprisingly high inflation or a sudden economic slowdown.<\/p>\n
This environment also suggests that the Cboe Volatility Index (VIX), currently hovering around 17, may be underpricing the risk of a policy surprise in the coming months. Buying VIX call options for June and July could provide a relatively cheap hedge against a market shock. Historically, periods of Fed uncertainty, like we saw in late 2022, have led to sharp spikes in volatility when unexpected data is released.<\/p>\n
Given that the market still expects cuts later this year, calendar spreads on Eurodollar or Fed Funds futures can be an effective way to play the timing. By selling a front-month contract and buying a contract for a later month, we are betting that the market will continue to push back its expectations for easing. This strategy profits from the timeline changing, rather than the ultimate direction of rates.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Reuters poll: economists shift to \u201chigher for longer\u201d Fed rates as PCE inflation forecasts rise.<\/p>\n","protected":false},"author":103,"featured_media":17023,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-48381","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t