December 2025 CPI Shows Inflation Steady at 2.7%, Above Fed Target Amid Political Uncertainty

This analysis is based on the Fox Business report [1] published on January 13, 2026, covering the Bureau of Labor Statistics’ release of December 2025 Consumer Price Index data.

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The December 2025 CPI report revealed inflation remains elevated but stable [1][2]:

Metric	December 2025	Expectation	Prior Month
Headline CPI (YoY)	2.7%	2.7%	2.7%
Core CPI (YoY)	2.6%	2.7%	2.7%
Headline CPI (MoM)	0.3%	0.3%	0.3%
Core CPI (MoM)	0.2%	0.3%	0.3%

The data came in slightly below expectations on core measures, providing modest relief for inflation watchers [1][2]. This represents the first “clean” inflation reading following disruptions from a record-length government shutdown that affected September and November releases [8].

, accounting for approximately 42% of the total year-over-year increase [1]:

Category	Monthly Change	YoY Change
Shelter	+0.4%	+3.2%
Food	+0.7%	+3.1%
Medical Care	+0.4%	+3.2%
Energy	+0.3%	+2.3%

Notable category movements included recreation prices jumping 1.8% monthly (largest since 1993), while eggs fell 8.2% monthly and wireless telephone services declined 3.3% [1].

Equity markets showed resilience with major indices near record highs [3]:

• S&P 500
  : 6,977.26 (+0.48%)
• NASDAQ
  : 23,733.90 (+0.67%)
• Dow Jones
  : 49,590.21 (+0.18%)

Sector performance diverged significantly [0]:

• Outperformers
  : Consumer Defensive (+1.88%), Technology (+0.89%)
• Underperformers
  : Real Estate (-1.53%), Healthcare (-0.94%)

Real Estate’s underperformance is particularly notable given persistent shelter inflation pressures [0].

The CME FedWatch Tool indicates a

the Fed will hold rates steady at its January 27-28 meeting [2][8]. The data supports the market consensus that the Fed remains in a wait-and-see mode.

However, the DOJ’s criminal investigation into Fed Chair Jerome Powell introduces significant political uncertainty [6][7]. JPMorgan analysts now expect the Fed to “stay on hold throughout 2026” as a result [10]. Wells Fargo economists noted this will complicate consensus-building among FOMC members [3].

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1. Sticky Shelter Inflation
   : With shelter contributing over 40% of total inflation and showing 3.2% YoY growth, achieving the Fed’s 2% target remains challenging [1].

2. Political Risk to Monetary Policy
   : The unprecedented DOJ investigation into Powell represents a new risk factor for markets, potentially affecting Fed independence and credibility [6][7][9].

3. Consumer Financial Health Warning
   : The NY Fed’s December survey showed consumers expect 3.4% near-term inflation and anticipate greater difficulty paying down debt [3].

4. Data Quality Considerations
   : Bank of America noted potential upward bias in December data due to carry-forward imputation from shutdown disruptions. Barclays expects the first fully reliable reading in March 2026 [8].

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1. Political Interference Risk
   : The DOJ investigation could lead to higher long-term rates, increased volatility, and delayed policy normalization [6][7].

2. Persistent Housing Costs
   : Sustained shelter inflation may prevent the Fed from reaching its 2% target in 2026 [1].

3. Consumer Stress
   : Rising inflation expectations combined with anticipated debt payment difficulties suggest weakening consumer financial health [3].

• January 27-28 FOMC Meeting
  : Fed signals on rate path and political commentary
• March 2026 CPI
  : Expected to be first “clean” post-shutdown reading
• Housing Market Data
  : Critical for shelter inflation trajectory
• Powell’s Congressional Testimony
  : Insight into Fed response to political pressure

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The December 2025 CPI data confirms inflation has stabilized at 2.7% but remains above the Fed’s 2% target. The slightly below-expectation core reading (2.6% vs 2.7% expected) offers modest encouragement. Key contextual factors include:

• Near-term Fed action
  : Highly unlikely before June 2026 at earliest
• Shelter inflation
  : Remains the primary obstacle to reaching 2% target
• Political uncertainty
  : DOJ investigation adds new dimension to policy outlook
• Market positioning
  : Defensive sectors showing relative strength amid uncertainty

The combination of sticky inflation and political uncertainty suggests a prolonged period of elevated rates, with rate cut expectations having shifted materially since the DOJ investigation announcement [10].