Inflation data in the US today
There was very little reaction in markets to Jerome Powell’s criticism of threats to the Fed’s independence. Markets are similarly shrugging off Donald Trump’s announcement of a 25% tariff on any country ‘doing business’ with Iran (indeed this may reduce the chances of US military action), though China not surprisingly has criticised the decision. In FX, the euro traded up to a high of almost $1.17 against the dollar but has since come back to about $1.1660. Sterling is holding onto most of its gains against the US currency, trading at around $1.3460, and hence is a touch firmer against the euro at £0.8660 this morning. The yen, meanwhile, is notably weaker against the dollar (near Y159) amid speculation of a snap election in Japan. CPI data in the US will be the focus today, with headline inflation expected to be unchanged at 2.7% in December according to the consensus forecast.
US government bond yields rose marginally in response to Powell’s weekend statement, while UK and German yields were flat to slightly lower respectively. Yields generally are edging higher this morning ahead of the US inflation data later. In equity markets, US stocks ended with modest gains, having traded lower at the start of play, while European indices also chalked up small gains. Japan’s Nikkei has rallied strongly overnight, up more than 3%, supported by the weak yen.
Fed member Williams says the US economic outlook is favourable. He expects GDP growth to ‘pick up’ somewhat this year, having run a bit above 2% in 2025, with the labour market stabilizing and inflation ‘peaking sometime in the first half of this year as the full effects of tariffs are felt’ before move backing toward the 2% target thereafter. He believes ‘monetary policy is well positioned for this year and beyond’, suggesting he’s not in a hurry to lower interest rates again following the three quickfire 25bps reductions over the closing months of last year.
For the day ahead, as mentioned, the main economic data release is the December CPI report in the US. Other US data scheduled include ADP employment (for the four weeks ending December 27), the small business optimism index (December) and new homes sales (September-October). A few central bank members are due on the wires today, including Bank of England Governor Andrew Bailey.