New inflation reading likely to keep Fed on hold this month

Core Insights - The December Consumer Price Index (CPI) shows a core inflation rate of 2.6%, slightly below the expected 2.7%, but consistent with the previous months from September to November, remaining close to the Federal Reserve's 2% target [1] - The inflation report does not provide sufficient justification for the Federal Reserve to consider cutting interest rates in the upcoming meeting, as inflation remains above target [2] - Shelter costs, which rose by 0.4% in December, were a significant contributor to the inflation increase, although the data collection process may have skewed the results due to assumptions made during the government shutdown [2][3] Economic Outlook - The Federal Reserve is expected to maintain its current interest rate range of 3.5%-3.75% for the time being, as rates are deemed well-positioned to support job growth while managing inflation [5] - New York Fed president John Williams anticipates economic growth in 2026, with inflation expected to peak in the first half of the year and then decline to just under 2.5% by year-end [4] - The expectation is for 50 basis points of policy easing in 2026, but the Fed is likely to wait until at least June to resume rate cuts [4]