December inflation rose modestly, with overall CPI up 0.3% and core prices up 0.2%, signaling easing but still elevated price pressures.

For the year through December, the CPI is seen at about 2.7% on a 12-month basis, with core inflation around 2.6%, indicating a cooling trend from earlier highs.

The Fed trimmed its key rate by a quarter point in December, yet policymakers signaled that additional cuts may wait as the economy evolves and divisions remain within the committee.

Political friction between Fed Chair Powell and President Trump is noted, including mentions of a DOJ investigation into Powell that Trump denies as politically motivated, injecting uncertainty into the outlook.

Observers highlight tensions over Fed independence and policy path, with Powell resisting further rate cuts amid criticisms from the White House.

The December release is embedded in a broader inflation narrative involving government shutdown distortions, wage trends, and policy responses from the Fed and lawmakers.

Markets noted external influences, including global bond market moves such as Japan’s long-term yields, shaping expectations beyond U.S. policy alone.

Uncertainties surrounding tariffs and political investigations weigh on inflation expectations and pricing dynamics.

Tariffs are acknowledged as contributing to inflation pressures, though some officials view broader inflation trends as improving.

Markets reacted to the report with higher stock futures and lower Treasury yields, reflecting cautious optimism about cooler inflation.

The investment outlook suggests room for policy easing if inflation continues to cool, though near-term action depends on data.

Overall, December data supports keeping the federal funds rate unchanged in coming meetings, with expectations of gradual easing only if inflation stays on a cooler path.