US unit labour costs rose by 2.8% in the fourth quarter. This was above the forecast of 0.2%.<\/p>\n
The update was reported at 13:30:51 GMT on 03\/05\/2026. The item was published by the FXStreet team.<\/p>\n
With fourth-quarter unit labor costs for 2025 coming in at 2.8%, shattering the 0.2% forecast, we must assume the Federal Reserve will stay hawkish. This unexpected inflationary pressure makes interest rate cuts in the first half of 2026 highly unlikely. This forces a repricing of risk across all asset classes.<\/p>\n
This data builds on the January 2026 Consumer Price Index report, which showed core inflation remaining sticky at 3.1%. In response, pricing in the Fed Funds futures market now indicates less than a 10% chance of a rate cut before July, a sharp reversal from just a month ago. We must now trade with the view that rates will be higher for longer.<\/p>\n
For equity derivatives, this means we should expect higher volatility and downward pressure on indices. The VIX index has already spiked by 18% to over 16.5, and buying protective put options on the SPY or QQQ ETFs is a prudent defensive strategy for the coming weeks. Selling call spreads on growth-sensitive sectors also looks attractive.<\/p>\n
In the interest rate markets, the focus shifts to betting on persistently high yields. We saw the 2-year Treasury yield jump 16 basis points this morning to 4.85%, its highest level since late 2025. Positioning through put options on Treasury futures or considering interest rate swaps that pay a fixed rate will likely be profitable.<\/p>\n
This environment is reminiscent of what we saw in early 2023, when the market repeatedly tried to price in a dovish Fed pivot only to be proven wrong by stubborn economic data. The lesson from that period was that challenging a data-dependent Fed in an inflationary environment is a costly mistake. We must adjust our strategies to reflect this persistent economic reality.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" US unit labour costs jumped 2.8% in Q4, far above the 0.2% forecast, FXStreet reported.<\/p>\n","protected":false},"author":103,"featured_media":17021,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-50825","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/50825","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/103"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=50825"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/50825\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17021"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=50825"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=50825"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=50825"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}