December's CPI report is forecast to reveal persistent inflation, reinforcing expectations that the Federal Reserve will hold rates steady in January. Strong labor market data and elevated price pressures are likely to keep borrowing costs elevated through early 2026.
- December CPI expected to rise 3.6% YoY, with core CPI at 3.4%
- Labor market remains strong: 185K jobs added, unemployment rate at 4.1%
- Wage growth at 3.9% YoY, above Fed’s 2% target
- Fed rate cut in January now unlikely; market pricing in potential further hikes
- US10Y yield at 4.48%, DXY at 106.4, USD/JPY at 153.80
- S&P 500 down 0.7% amid rising borrowing cost concerns
Inflation remains a central concern for U.S. monetary policymakers, with markets anticipating a modest yet significant rise in the December Consumer Price Index. Economists project the headline CPI to increase by 3.6% year-over-year, while core CPI—excluding food and energy—could hold at 3.4%, indicating underlying price pressures remain unrelenting. These figures would signal that disinflation has stalled, undermining expectations for a rate cut at the January Federal Open Market Committee meeting. The labor market continues to support a cautious stance from the Fed. The December jobs report showed nonfarm payroll growth of 185,000, slightly above consensus, with the unemployment rate holding at 4.1%. Wage growth remains elevated, with average hourly earnings rising 3.9% annually—above the Fed’s 2% target. Together, these data points suggest that demand-side pressures are still strong, limiting the central bank’s ability to pivot toward easing. Financial markets are reacting accordingly. The U.S. dollar index (DXY) climbed to 106.4, reflecting increased demand for safe-haven assets amid tighter monetary policy expectations. The 10-year Treasury yield (US10Y) rose to 4.48%, pricing in a higher probability of at least one additional rate hike in 2026. Equity markets showed mixed performance, with the S&P 500 (SPX) declining 0.7% as higher rates weighed on consumer discretionary and real estate sectors, which are sensitive to financing costs. The USD/JPY pair reached 153.80, driven by divergent monetary policies between the U.S. and Japan.