Pensions - Articles - US inflation undershoots at 2.6%-Trump can call off the dogs

Jonathan Moyes, Head of Investment Research, Wealth Club: "Leading into this latest US inflation print, markets have been eerily quiet, this is despite the brewing geopolitical risks and a fresh attack by the US president on the independence of the world’s largest central bank.

Predicting where inflation is headed is always a challenge, it is particularly so at present. The strong unemployment read from last Friday will be fresh on investors’ minds. Many have lowered their expectations for rate cuts in 2026 as a result. On the other hand, the world might just be on the cusp of a technology-led productivity boom, potentially a major disinflationary force for years to come, this may explain why the previous inflation data release was far weaker than many had predicted.

The market was expecting core inflation to come in at 2.7% for December, core inflation came in a touch lower at 2.6%. This was slightly better than the market was expecting. The initial market reaction has been one of slight relief. Both equities and bond markets have rallied, with the dollar weakening a touch.

The ball is now back in the Federal Reserve’s court. The message throughout 2025 has been one of caution. Clearly the Federal Reserve has been reticent of cutting too far too soon. There are several crosscurrents in play, there are question marks over the extent to which trade tariffs, tax cuts and geopolitics will feed through into future inflation numbers.

What’s clear from today’s reading – US inflation is again softer than many expected, this paves the way for looser monetary policy in 2026. Trump can call off the dogs.”