US average hourly earnings rose by 0.2% month on month in March. The forecast was 0.3%.
The March reading was 0.1 percentage points below expectations. This points to slower wage growth than predicted for the month.
March 2025 Context And The Need To Reassess
We remember that report from March of 2025, when the lower-than-expected 0.2% wage growth signaled that the labor market was finally cooling. That data helped support the view that the inflation fight was being won. Today’s environment is starkly different and requires a shift in strategy.
This morning’s data for March 2026 showed that average hourly earnings just jumped by 0.4%, while the economy added a robust 250,000 jobs, crushing expectations. This reversal suggests inflationary pressures are re-emerging, a concern after February’s CPI report also came in hot at 3.1%. The Federal Reserve is now unlikely to cut interest rates in the near future.
This new reality of ‘higher for longer’ rates means we expect bond yields to climb in the coming weeks. Traders should consider positions that benefit from this, as the market rapidly prices out any chance of a summer rate cut. This could include buying put options on long-duration bond ETFs or shorting Treasury futures to hedge against falling bond prices.
We also anticipate a rise in market volatility from these inflationary surprises. The VIX index has been sitting below 14 for weeks, but this kind of data shock could easily push it toward the 18-20 range. Consequently, buying call options on the VIX or protective puts on the S&P 500 index offers a way to guard against a potential equity market pullback.
Implications For Rates Volatility And Fed Strategy
This situation feels similar to the difficult “last mile” of the inflation battle we experienced back in 2023, where progress stalled and the Fed was forced to remain aggressive. That historical lesson tells us not to bet against the Fed’s resolve to keep rates restrictive when the data is not cooperating. The path of least resistance for interest rates now appears to be sideways to higher.
