U.S. Inflation Cools in January 2026, Sparking Federal Reserve Debate

U.S. inflation showed unexpected signs of cooling in January 2026, providing some relief to households and igniting discussions about potential changes in Federal Reserve policy. The Consumer Price Index CPI report, released on February 13 by the U.S. Bureau of Labor Statistics, revealed that headline inflation rose by 0.2 month-over-month and 2.4 year-over-year, falling below economists predictions. Core inflation, which excludes food and energy prices, increased by 0.3 monthly and 2.5 annually, aligning with expectations but remaining above the Fed s 2 target.
The annual headline rate of 2.4 marks the lowest level since May 2025 and is attributed to declines in energy prices, particularly a 3.2 drop in gasoline. However, shelter costs continued to rise, increasing by 0.2 from the previous month and 3.0 from the previous year. Food prices also saw a monthly increase of 0.2 and an annual rise of 2.9 , while services like medical care and recreation reported gains.
Market reactions were mixed stock futures initially dipped but then turned higher, indicating relief rather than excitement. Equities traded unevenly, with most major indices down, and the crypto market showed a split performance. Gold prices rose by 1.6 to 4,998.61 per ounce, reflecting ongoing demand for hard assets.
This report comes after a period of inflation above target throughout much of 2025 and follows a brief delay due to a partial government shutdown. January s data included updated seasonal factors and revisions to previous years, but no significant trend shifts were noted.
Markets widely expect the Federal Reserve to maintain the current federal funds rate, with the CME s Fedwatch tool indicating a 90.3 probability of no change. For policymakers, the cooler headline reading may alleviate immediate pressure. However, with core inflation at 2.5 , officials remain cautious due to potential tariff impacts and a stable labor market. Markets are beginning to price in the possibility of rate cuts later in 2026 if the disinflation trend continues.
For consumers, the situation is mixed: while gasoline prices have provided some relief, housing and services costs remain high. The path back to the 2 inflation target appears closer than last fall but is not yet fully achieved.