What's happened
Consumer prices in the US increased by 2.7% year-over-year in December, matching November's rate. Core inflation rose 2.6%. Despite ongoing inflation, prices have slowed from a 3% peak in early 2025. The Federal Reserve is expected to hold interest rates steady amid mixed economic signals.
What's behind the headline?
The latest inflation data confirms that US inflation remains stubbornly above the Federal Reserve's 2% target, despite a clear slowdown from the highs of 2022. The steady 2.7% annual increase indicates that inflationary pressures are easing but not yet under control. The Fed's decision to hold interest rates steady is supported by the recent employment figures showing low unemployment at 4.4%, but the legal and political challenges facing Chair Jerome Powell threaten to complicate future policy moves. The fact that tariffs and supply chain shifts have not significantly impacted prices suggests that inflation is now more driven by domestic factors, such as wage growth and service costs, rather than external trade pressures. This signals that the Fed will likely maintain a cautious stance, prioritizing economic stability over aggressive rate cuts, especially with political interference and legal scrutiny mounting. The next few months will be critical in determining whether inflation will fall further or become entrenched, impacting borrowing costs, consumer spending, and overall economic growth.
What the papers say
The New York Times highlights that inflation has remained steady at 2.7%, with some economists surprised that tariffs haven't further driven prices up, given recent trade policy shifts. Business Insider UK emphasizes that the Federal Reserve is expected to keep rates steady, citing low unemployment and slow inflation as key factors. The NY Post notes that inflation slowed from 3% in January 2025, but remains above the Fed's target, with ongoing political pressures and legal issues surrounding Chair Powell adding uncertainty. The Independent discusses the complexities of inflation data collection post-government shutdown and the broader economic context, including the impact of rising costs on consumers and the Fed's balancing act. AP News echoes these points, stressing that despite the slowdown, inflation remains above target, and the political environment, including subpoenas to the Fed, could influence future policy decisions.
How we got here
Inflation in the US has been gradually decreasing from a peak of 9.1% in June 2022. The recent data reflects a slowdown in price increases, partly due to the easing of tariffs and supply chain adjustments. The government shutdown last fall temporarily disrupted data collection, complicating recent figures. The Federal Reserve has been balancing efforts to fight inflation with supporting employment, with interest rates remaining near 3.6%. Political pressures and legal challenges, including subpoenas related to Fed building renovations, have added complexity to monetary policy decisions.
Go deeper
Common question
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Is US Inflation Staying Steady at 2.7% in 2026?
With December's inflation rate holding steady at 2.7%, many are wondering what this means for the US economy. Is inflation truly under control, or are there underlying issues? How will this impact interest rates, jobs, and political decisions? Below, we explore the key questions shaping the economic landscape in 2026.
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