13.01.26 - Fed in focus: cooling prices, hot politics
The widely followed December US inflation data delivered a mixed but important message for markets.
Headline CPI rose 0.3% month-on-month and 2.7% year-on-year, exactly in line with expectations.
Core CPI (ex food & energy) increased only 0.2% MoM and 2.6% YoY, undershooting the consensus forecast of 2.8%.
At first glance, investors interpreted the data as confirmation that inflation pressures are easing. A closer look suggests the picture remains incomplete.
Markets:
Equities: US equity Futures, flat overnight, briefly moved into positive territory after the release before slipping into the red shortly after the opening bell.
Bonds: Yields declined across the curve, both at the short and long end, after the US 10-year yield had briefly exceeded 4.2%ahead of the data.
USD: strengthened
Commodities: Gold, silver, and other metals continued their rally.
My View: Prices are cooling—but not enough to justify another rate cut anytime soon as job market does not seem to deteriorate.
Nothing new, the White House sees room for interest-rate cuts. The Federal Reserve may not, at least not yet. Today’s data strengthens the Fed’s position: inflation is easing, but not decisively enough to warrant policy action, especially with the 2% inflation target still clearly out of reach.
The Fed will remain in focus—not only because of rate decisions, but also due to renewed debate around its independence and the expected announcement of a new Fed chair in the coming days or weeks.
Central-bank independence is a cornerstone of market stability. As such, it should not, by itself, trigger major market disruptions.
That said, political pressure is rising. Donald Trump has increasingly sought to influence monetary policy and push for lower rates. Yesterday’s developments marked another chapter in this ongoing tension. The session opened under a cloud following reports that the Department of Justice was considering actions involving Jerome Powell, linked to developments at the Fed’s headquarters.
This should be interpreted less as a narrow legal matter and more as part of the broader tug-of-war between central-bank independence and political impatience.
For investors, the takeaway is clear: inflation is moving in the right direction, but the path toward easier monetary policy remains uncertain— and more rate cuts could be seen rather later than sooner. Which could lead to some disappointments followed by investors repositioning their assets, reducing risk assets in case they adapt to this scenario.
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