US Economy Faces Key Inflation Test as Trump Escalates Fed Tensions Ahead of December CPI Release

Markets Brace for December CPI Data

US policymakers await the December consumer price index (CPI) report on Tuesday, providing critical insights into inflation trends after a government shutdown disrupted prior data collection.

Headline inflation held at **2.7%** year-over-year in November, down from 3.0% in September, while core inflation fell to **2.6%**, its lowest since March 2021. Analysts caution that missing October quotes and delayed November collections may have distorted these figures.[1][2]

The upcoming data could influence Federal Reserve decisions, with rate-setters divided on easing policy amid labor market concerns or holding steady due to sticky inflation.

Trump Administration Heightens Pressure on Federal Reserve

Wall Street experienced volatility as the Trump administration escalated its attacks on the Federal Reserve, sparking worries over central bank independence.

Stocks, bonds, and the dollar rebounded from session lows, with the S&P 500 up **0.2%**, Nasdaq gaining **0.5%**, and the 10-year Treasury yield at **4.17%**. Gold surged to a record high, up **$100 an ounce**.[3]

A US Supreme Court decision on President Trump's emergency tariff powers is expected Wednesday, with online betting markets assigning less than a **30%** chance of upholding the tariffs.[2]

Fed Speakers and Labor Market Signals in Focus

A heavy slate of Fed officials will speak this week on the economic outlook and monetary policy, with markets attuned to labor market comments.

December nonfarm payrolls showed conflicting signals, with private payrolls excluding health care declining **-1.5k** and averaging **-19.4k** over three months. Downside risks to employment support calls for additional rate cuts.[2]

• US retail sales for November due Wednesday, expected at **0.5%** month-over-month versus 0% in October.
• Industrial production and producer prices also scheduled, alongside updates to retail sales control group for GDP calculations.

Broader Economic Indicators and Expectations

Consensus holds headline CPI at **2.7%** year-over-year for December, with core rising to **2.7%**. Falling energy prices, slowing housing rents, and weakening wage growth may push inflation toward the Fed's **2.0%** target.[2][4]

Fed funds futures price in **50 basis points** of cuts in 2026, unlikely to shift despite this week's data. Retail sales control group projected at **0.4%** month-over-month.[1][2]

Recent third-quarter GDP growth exceeded **4%**, underscoring economic resilience despite moderating job gains and Fed tensions.[5]

Global Context and Market Sentiment

Investment manager surveys indicate improving risk appetite, driven by expectations of looser policy and growth prospects. S&P Global's January Investment Manager Index releases Tuesday.[1]

Upcoming events include Canada housing starts, Germany and Italy final inflation figures, and South Korea's Bank of Korea rate decision, influencing cross-market dynamics.[1]