The U.S. consumer price index for December came in with core CPI rising just 0.2% month-over-month and 2.6% year-over-year—matching a four-year low and beating expectations (Bloomberg). The softer inflation reading has reinforced market expectations for the Federal Reserve to resume interest rate cuts by mid-year (Morningstar).
Key data points
Overall CPI increased 2.7% year-over-year in December, matching the November rate, while core CPI rose 2.6% annually, also matching November (Morningstar).
Monthly headline inflation rose 0.3% after increasing 0.2% from September through November; core inflation rose 0.2% after the same 0.2% pace in prior months (Morningstar).
Shelter prices rose 0.4% in December, continuing a moderation trend that had been the primary driver of sticky inflation throughout 2025 (Morningstar).
Central bank dynamics
Eleven global central bankers—including the ECB, Bank of England, Bank of Canada, SNB, and RBA—expressed "full solidarity" with Fed Chair Powell amid unprecedented political pressure from the Trump administration (Bloomberg).
The statement emphasized that "the independence of central banks is a cornerstone of price, financial and economic stability" and that it is "critical to preserve that independence" (Le Monde).
Market analysis
Trading recommendation: Favor duration extension in Treasury portfolios given constructive inflation trajectory and increased probability of Fed cuts by June. Consider tactical overweight in rate-sensitive sectors (utilities, REITs) ahead of potential policy pivot. Maintain defensive positioning in equities given mixed signals and geopolitical uncertainty. Watch for volatility around Trump's Davos speech next week.