US CPI sees one of the largest misses in recent memory, Fed to proceed with rate cuts in 2026
On face value, fears of a tariff-induced spike in US inflation are so far proving to be almost entirely unfounded following one of the largest misses in a CPI report in recent memory. We don’t think that the Fed will be rushing to judgement just yet for two reasons: firstly, given that shutdown distortions may have artificially skewed the data and secondly, considering that we are still not close to seeing the full impact of the tariffs on consumer prices.
At any rate, the Fed will welcome today’s news, and with the jobs market continuing to show clear signs of cooling, officials will be comfortable proceeding with further interest rate reductions. We actually think that the December dot plot is quite conservative, as we see at least a couple more cuts in 2026. This should act to keep the dollar on the back foot against most currencies next year.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
