"US inflation has surprised to the downside, showing disinflationary progress is the US is on track and that rate cuts could well be on the cards as we move through 2026. Economic conditions in the US are currently showing signs of improvement in the form of solid GDP growth and a stabilising labour market. "These latest positive inflation figures mean that if the disinflation trend continues, policy makers are likely to ease rates as 2026 progresses."
"Bond markets are currently pricing in two cuts for 2026, starting in May, which would bring interest rates down to a range of 3.00-3.25%, a level at which many analysts deem to be a sensible neutral rate. With tariff related goods inflation expected to peak in the first half of the year and rental inflation set to continue to normalise, the signs look positive for inflation to continue its downward trend."
"In the near term however, policy makers may deem it appropriate to keep rates steady for a couple more meetings whilst they continue to survey incoming data and make sure the disinflation seen today, is the start of a trend and not just a blip."
US annual inflation fell to 2.4% in January, below market expectations of 2.5%. Monthly inflation declined to 0.2% in January from 0.3% in December, under the expected 0.3%. Annual core inflation excluding energy and food remained at 2.5%, while core monthly inflation rose 0.3% in January, matching expectations. Economic indicators show solid GDP growth and a stabilising labour market. Bond markets price two rate cuts in 2026 beginning in May, potentially lowering rates to 3.00–3.25%. Tariff-related goods inflation is expected to peak in the first half and rental inflation to normalise, supporting continued disinflation, though policymakers may hold rates for a few more meetings.
Read at London Business News | Londonlovesbusiness.com
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