December Inflation Holds at 2.7% — What the Fed’s Next Moves Might Be

The December Consumer Price Index confirms a softening but not a resolution of inflation pressures. Headline inflation year-over-year held at 2.7%, the same as in November, matching forecasts; core inflation ticked in at 2.6%—steady but still above the Fed’s long-term target of 2%.

Federal Reserve leadership, including St. Louis Fed President Alberto Musalem, are warning there’s “little reason” to ease policy soon, reiterating that inflation remains too elevated and that progress toward the 2% goal is ongoing. These public signals are designed to manage market expectations, and to ensure flexibility in case inflation re-accelerates.

Markets and firms are now focused on upcoming releases—especially producer price data, retail sales, and the Beige Book. Producer prices will test upstream inflation pressures; retail sales reflect demand resilience; and the Beige Book will give qualitative insight into sectoral trends, supply-chain stress, and pricing intentions. Together, this trio of data points could shift expectations for when rate cuts might begin.

Strategically, smoothing inflation means the Fed is more likely to hold interest rates steady in the near term—likely through the January FOMC meeting—and delay cuts until there’s clear evidence of sustained disinflation in both headline and core measures. Firms should anticipate continued upward cost pressures, especially in food, certain services (housing, health), and tariff-sensitive inputs. Consumer spending may give way under inflation plus weak wage growth, which could drag growth without an increase in policy stimulus. Key uncertainties include whether inflation trends will continue drifting downward, how the labor market behaves (including employment and wage dynamics), and whether external shocks (tariffs, energy costs) could reverse progress.