Insights 
VT 
US consumer price index (CPI) data is set for release at 8:30 am US Eastern time on Wednesday, 11 June 2025. Both headline and core inflation rates are anticipated to rise compared to the previous month.
Analysts predict that core inflation in the US has increased in May from April, remaining well above the 2% target. There are warnings from Deutsche Bank regarding the possibility of higher Federal Reserve rates persisting for an extended period, posing risks to US borrowers.
Expectations for Federal Reserve Actions
Citi’s projections align with this view, as they also expect interest rates to remain elevated for longer. They forecast a Federal Reserve rate cut in September instead of July as previously anticipated.
That said, the broader picture has shifted in tone. What we’ve seen so far points not to a softening in inflation, but rather a resurgence. The May figures, if estimates are accurate, will show that price pressures haven’t diminished as optimistically as markets had begun to price in. A monthly increase in core inflation, especially when it follows a series of readings that were expected to be flatter, feeds concerns that policy tightening may remain a fixture longer than projected.
Deutsche’s view serves as a reminder that interest costs across sectors—especially those reliant on shorter-term funding—may remain a drag on activity. With base rates already constricting liquidity conditions, business and consumer credit behaviour could be affected by merely the prospect of continued high borrowing costs, let alone realised ones. We must keep in mind that this cycle of monetary tightening was initially framed as sharp but short-lived; sentiment is moving away from that.
Citi’s revision to its expected rate cut timing—the shift from July to September—reflects a data-led reshaping of previous optimism. There had been a growing belief in markets that earlier policy easing might be possible, especially following earlier signs of cooling in the labour market and a moderation in spending data. However, if core prices are firming again, the Fed has less room to manoeuvre.
What matters now, especially in shorter-dated interest rate instruments, is calibration. Sensitivity to incremental data points will likely rise. Weekly jobless claims, retail sales, and even supplier delivery times might influence volatility to a degree uncharacteristic of their usual weight. These sorts of market conditions typically lead to a re-evaluation of strike levels and expiries, especially when directional conviction is low but the potential for an outsized move is rising.
Reevaluation of Market Strategies
We are already seeing some repricing in the rates curve, with implied yields at the front end pushing higher. That makes short gamma unattractive in certain tenors unless carefully hedged, as the combination of compressed realised volatility and headline-driven spikes can prove punishing. Longer duration trades require selectivity, and those who lean into steepeners might consider fading too much front-end optimism—particularly ahead of next week’s CPI data.
As for our stance, we should be reassessing exposure around FOMC pricing. Curve trades constructed earlier in the quarter may no longer serve the intended risk distribution. Strategies that assumed a July rate cut may need unwinding or restructuring, especially with options expiry framed closely around potentially disruptive data prints.
Positioning ahead of CPI now looks more tactical than thematic. Those waiting for validation of a Fed pivot may need to wait longer, leaving trades sensitive to duration or issuance news more vulnerable than usual. Steady caution, rather than aggressive positioning, might be warranted through the end of the month.
