Inflation stickiness remains, with increased division among Federal Reserve officials: will there be a 150-basis-point interest rate cut this year or just 25?

The latest consumer and wholesale inflation data shows that prices remain sticky, reinforcing market expectations that officials from the Federal Reserve will not cut interest rates in the short term. Meanwhile, Federal Reserve officials are delving into these data to predict inflation trends until 2026, outlining the roadmap for interest rate decisions this year. A report delayed by the government shutdown released by the U.S. Department of Labor on Wednesday showed wholesale prices, measured before inflation transmission to consumers, rose 3% year-on-year in November, up from a 2.8% increase in October. The report combined data from October and November. Rising energy prices have boosted the overall index. However, even after excluding volatile energy, food prices, and trade services, wholesale prices for the 12 months ending in November still rose by 3.5%, marking the largest 12-month increase since a 3.5% rise in March. While the data may seem hot on the surface, a closer look at the Producer Price Index by the Bureau of Labor Statistics shows that wholesale inflation is actually more moderate. The delayed release of the October and November indices was higher than most people's expectations at the end of last year, but this was mainly due to revisions to the September data. "For the Federal Reserve, the worst-case scenario is only a preliminary concern about the impact of tariffs, with core personal consumption goods PPI rising a strong 0.5% in September and October, although it then declined by 0.1% in November," wrote Stephen Brown, Deputy Chief North American Economist at Capital Economics in a report. The latest December Consumer Price Index data released on Tuesday shows that inflation remained stubborn at the end of 2025. The core Consumer Price Index, excluding volatile food and energy prices, recorded 2.6%, 0.1 percentage points lower than the expected 2.7%. However, the level of 2.6% remained the same as from September to November, and still above the Fed's 2% target. Brown said that based on consumer and wholesale price data, his initial estimate shows that the Fed's preferred inflation indicator, the core Personal Consumption Expenditures Price Index, could rise to 3%, while he estimates that this index has remained unchanged at 2.8% for the previous three months. The Beige Book from the Federal Reserve (a compilation of anecdotal evidence on economic conditions in all 12 Federal Reserve Districts) shows that in the weeks leading up to January, cost pressures from tariffs were a continuing theme. Companies that initially absorbed the costs related to tariffs began passing them...