December Inflation Steady, Keeping Fed on Cautious Hold

U.S. consumer prices rose 0.3% in December and 2.7% year over year, matching economists’ expectations and signaling a still-contained but not yet fully subdued inflation backdrop, according to the Bureau of Labor Statistics. Core consumer prices, which exclude food and energy, increased 0.2% on the month and 2.6% over the past 12 months, pointing to a gradual cooling in underlying price pressures. 

These figures mark the first monthly inflation data since September, following a government shutdown that disrupted data collection in the fall. The renewed data flow offers the Federal Reserve a clearer read on price trends as officials weigh whether additional interest rate cuts are warranted after several reductions last year. 

For Fed policymakers, December’s report is likely to be reassuring but not decisive. Inflation remains above the central bank’s 2% target, limiting the case for aggressive easing, even as the labor market has shown signs of softening. The data reinforce the Fed’s recent message that it can afford to be patient and data-dependent rather than rushing to provide further stimulus. 

New York Fed President John Williams underscored that stance on Monday, signaling little urgency to lower rates immediately and helping cement expectations that the Fed will keep policy on hold at its January 27–28 meeting. He does not expect inflation to be back to the Fed’s target until 2027.