Fed Holds Firm: January Rate Cut Hopes Fade Despite Cooling CPI

NEW YORK — The path to monetary easing has hit a roadblock. Despite fresh data showing US inflation moderated in December, Fed officials are signaling they are in no rush to lower interest rates further at their January meeting.

• Core CPI: 2.6% (Year-on-Year)
• Headline CPI: 2.7%
• Unemployment Rate: 4.4%
• CME Hold Probability: 97%
• December Deficit: $145 billion

Delicate Balance

According to the latest Labor Department data, Core CPI rose 2.6% year-on-year in December, holding at a five-year low. Headline CPI landed at 2.7%, matching expectations.

Richmond Fed President Thomas Barkin noted that while inflation is slowing, it remains above target. Simultaneously, Saint Louis Fed President Alberto Musalem argued there is no compelling case for a rate cut given the resilience of the labor market.

Currency markets reacted swiftly, with the USD recovering early losses. CME Group data shows the probability of a hold at the upcoming meeting has surged to over 97%.

Fiscal Headwinds

Treasury data revealed a record December budget deficit of $145 billion, driven by surging debt interest payments and social spending.

While aggressive tariff revenues (approx. $264 billion in 2025) show some reduction, analysts warn that a 15% jump in debt servicing costs could keep a floor under long-term yields.