US CPI: Steady inflation unlikely to shift January hold expectations, experts react

Today’s US CPI data offered tentative relief for markets, with core inflation undershooting expectations and reviving hopes of policy easing in 2026. However, economists caution that one-off distortions from the government shutdown and persistent shelter inflation mean the Federal Reserve is likely to remain in wait-and-see mode despite the constructive signal for risk assets.

Experts are sharing their reactions below:

Jeff Schulze, Head of Economic and Market Strategy at ClearBridge Investments:

“The December core CPI report came in modestly below consensus expectations providing hope that the Fed can provide further support to the economy even with lingering data distortions from the government shutdown.  Categories that typically experience steep discounting in late November like apparel, airfares, and hotels witnessed a snap back in pricing, but these increases should not be extrapolated by investors due to the one-time nature of this issue.

Shelter inflation showed some strength and will be an area to monitor going forward since it will continue to be understated until the April CPI release due to the missed sampling window in October.  

While investors will cheer this release as further evidence of disinflationary progress, the Fed will remain in “wait and see” mode given the uncertainty until more distance came be put between the data and the shutdown.  

This release is positive for risk assets and increases the odds that the Fed will provide additional monetary policy support in 2026.”

Chris Beauchamp, Chief Market Analyst at IG, said:

“After the mess of November’s figures these numbers were meant to provide clarity, and they seem to have done that. Weaker core CPI is just what investors wanted, coming just an hour or so after JPMorgan’s optimistic read on the US economy. Dow futures had notched up a new record high today, and today’s data seems to strengthen the argument for a new push towards the totemic 50,000 level.”

José Torres, Senior Economist at Interactive Brokers, comments:

“In light of the debasement positioning that is gripping markets on Monday, Tuesday’s December Consumer Price Index (CPI) is critical because it could meaningfully impact financial assets. It’s precisely the wide range of possible outcomes that is especially noteworthy. Of the 41 professional forecasters surveyed by Reuters in its monthly poll, the minimum and maximum projections sit at 2.5% and 2.9%. The sharp discrepancy concerning an indicator that is typically well telegraphed by Wall Street is emblematic of the adverse impacts of the government shutdown, which led the Bureau of Labor Statistics to use a controversial carry-forward data technique.

This technique most likely reflected lower-than-actual costs for shelter and drove a significant miss in November’s report. How these heavily weighted numbers are adjusted for the incoming publication is top of mind for economists, and the potential answer to that question is what’s informing expectations as low as in the mid-2s or at almost 3%. The results’ influence on upcoming monetary policy decisions will also be pivotal, as lighter stats play to the hands of the doves and the President, while bulkier figures embolden the hawks on the other side.”

 Lindsay James, investment strategist at Quilter:

“US inflation continues to fluctuate as data collection returns to normal once more following the government shutdown earlier this year. Today’s figures place the annual rate at 2.7%, up from 2.6% last month. This does still follow a fall from 3% in September, although October’s data wasn’t collected due to the shutdown, but this was likely distorted to some extent as a result given the Bureau of Labor Statistics had to make certain assumptions in order to produce November’s figures. These latest figures are a sign of some of this effect reversing. 

“Tariffs have been putting upwards pressure on good prices throughout 2025, with the latest figures showing commodities, or goods, prices rose 1.4% year over year in December. This figure was negative for much of the decade before the pandemic, with cheap imports a crucial offset to higher services inflation, allowing both overall CPI and interest rates to remain low. We are now seeing rising goods prices with service cost inflation cooling, yet still above its long-term trend. 

“Looking ahead, it may be the case that with mid-term elections approaching with polling weak and clear attention once more on the cost of living, we may see certain tariffs quietly sidelined, especially with foreign policy announcements dominating. With shelter costs tracking cooling house prices with a time lag, and surplus liquidity from the pandemic years also now eliminated, headline inflation may head back towards target in the year ahead. We also face the uncertain outcome of a Supreme Court decision on the legality of certain tariffs, with a decision due in coming weeks. 

“However, whilst it is traditional for central banks to focus heavily on economic data, the latest attacks on Fed Chair Jerome Powell signify that Donald Trump wants lower interest rates regardless. With attention potentially shifting to the courts, it may be that it is the lawyers rather than the economists that have greater sway over monetary policy in the coming months.”  

 Richard Flax, Chief Investment Officer at Moneyfarm, said:

“Headline inflation in the US matched expectations, rising 2.7% year-on-year and 0.3% month-on-month in December. Core CPI came in slightly softer, up 0.2% MoM and 2.6% YoY versus forecasts of 0.3% and 2.7%. With annual inflation unchanged from November, there might be more talk about a potential rate cut at the next meeting. However, annual inflation remains comfortably above the Feds 2% target and this release comes against a backdrop of heightened tension between the administration and the Fed, adding complexity to the policy outlook.”

Jonathan Moyes, Head of Investment Research, Wealth Club:

“Leading into this latest US inflation print, markets have been eerily quiet, this is despite the brewing geopolitical risks and a fresh attack by the US president on the independence of the world’s largest central bank.

Predicting where inflation is headed is always a challenge, it is particularly so at present. The strong unemployment read from last Friday will be fresh on investors’ minds. Many have lowered their expectations for rate cuts in 2026 as a result. On the other hand, the world might just be on the cusp of a technology-led productivity boom, potentially a major disinflationary force for years to come, this may explain why the previous inflation data release was far weaker than many had predicted.

The market was expecting core inflation to come in at 2.7% for December, core inflation came in a touch lower at 2.6%. This was slightly better than the market was expecting. The initial market reaction has been one of slight relief. Both equities and bond markets have rallied, with the dollar weakening a touch.

The ball is now back in the Federal Reserve’s court. The message throughout 2025 has been one of caution. Clearly the Federal Reserve has been reticent of cutting too far too soon. There are several crosscurrents in play, there are question marks over the extent to which trade tariffs, tax cuts and geopolitics will feed through into future inflation numbers.

What’s clear from today’s reading – US inflation is again softer than many expected, this paves the way for looser monetary policy in 2026. Trump can call off the dogs.”

Daniele Antonucci, Chief Investment Officer at Quintet Private Bank (parent of Brown Shipley) comments:

The latest inflation figures should boost market conviction that the Fed will likely continue to cut interest rates in the near term. While headline inflation was unchanged from the previous month as expected, the core measure, which strips out volatile components such as food and energy and is often seen as a better gauge of underlying inflation trends, surprised to the downside.

The bigger picture remains uncertain when it comes to the longer-term trajectory of the US rate path and the dollar, with investors questioning, and occasionally worrying about, the Fed’s ability to continue to operate in an environment where decisions are taken independently, in line with the central bank’s mandate. The market backdrop remains in transition: trade uncertainty is receding, reducing volatility and increasing confidence among businesses and investors.

This is why we now expect faster economic growth than we did only three or six months ago. Japan is hiking rates, but most other central banks including the Fed are cutting, easing conditions for spending and investment.

At the same time, governments are directing capital towards infrastructure, defence and strategic sectors. Together, these policies create the most supportive backdrop for growth in years.

AI spending is one of the most powerful secular forces in today’s outlook. And, unlike past technology cycles, like the dot-com boom turned bust, the market leaders are funding their spending with genuine profit growth, not just speculative capital.

Valuations are on the demanding side, but we don’t think it’s a bubble at this stage. We remain moderately overweight equities and underweight bonds, focusing on regions where valuations align with fundamentals and growth prospects.

This reflects confidence that supportive policies and structural themes will continue to underpin corporate earnings. Within equities, we are slightly overweight in the US, Europe and emerging markets. These geographies offer diversified exposure to complementary growth drivers.

The US allows investors to gain exposure to long-term growth and AI, Europe combines attractive valuations with infrastructure and defence spending, emerging markets benefit from attractive valuations, dollar weakness and long-term growth. In bonds, we’ve sold short-dated European government bonds as we believe the European Central Bank is unlikely to cut rates.

With the proceeds, we’ve bought longer-dated ones across Europe and the US, where yields are now more attractive. Despite the purchase, we’re still underweight US Treasuries because of the risks from high US debt levels. We’ve also sold some of our global investment-grade corporate bonds as valuations are becoming more demanding.