If this plays out, expect wild howls by Trump later this month.
I produced the above chart in Excel by taking a weighted average of CME Fedwatch Interest Rate projections.
There is almost no chance of a cut in January.
Target Rate Probabilities for January 2026
As of January 11, 2026, there is only a 4.4 percent chance of a rate cut this month.
The first full quarter-point rate cut is not priced in until the June 17 FOMC meeting.
A second quarter-point cut is mostly priced in by the October 28 meeting, and fully priced in (but no more) by the December 9 meeting.
US Inflation to Pick Up After Muddy November CPI
Bloomberg reports US Inflation to Pick Up After Muddy November CPI
US consumers probably experienced only a modest pickup in inflation as 2025 drew to a close, consistent with price pressures that are gradually abating.
The core consumer price index, regarded as a measure of underlying inflation because it strips out volatile food and energy costs, is seen rising 2.7% in December from a year earlier. That’s just a touch more than the 2.6% annual advance in November, which was the smallest since early 2021.
On a monthly basis, economists expect 0.3% increases in both overall and core prices.
Economists said the November report, which showed a broad cooling of inflation, was distorted by the agency’s inability to collect most prices in October, as well as its assumption that key rent indexes were essentially unchanged for the month.
While that culminated in sizable downward pressure on the November figures, the December report, due on Tuesday, has the potential to reverse that bias.
Look Ahead, Not Back
The BLS assumed rent indexes were unchanged in October. OK. I suppose they could have dropped. We will find out shortly.
But looking ahead I expect some shocking numbers in the PCE for health care. And the PCE is the Fed’s preferred measure of inflation, not the CPI.
If I am correct, health care will more than wipe out and declines in rent this year (especially the PCE where health care has a bigger impact).
This explains the total capitulation by Trump and Republicans who suddenly agreed to Obamacare negotiations in January.
Senate Republicans Say 2-Year Obamacare Extension Deal Is Within Reach
Please note Senate Republicans Say 2-Year Obamacare Extension Deal Is Within Reach
This is like winning a game in regulation then voluntarily agreeing to overtime.
President Trump told House Republicans on Tuesday [January 6] that they should be “a little flexible” on abortion policy.
Question of the Day
Q: Gee, who couldda possibly have predicted this?
A: Uh… Me.
And Here We Are
Republicans successfully ran out the ACA extension funding clock, seemingly winning the game.
In voluntary overtime, Republicans agreed to a two-year extension. Open enrollment which expired last month will be extended.
There are 24 million people on ACA, and a majority of them are in Republican states.
Obamacare costs were projected to go up 114 percent. Now they will only go up 26 percent.
Military Spending
This is not a done deal yet, but Trump Seeks a $500 Billion Increase in Defense Spending
That’s a 5.8 trillion increase in debt over 10 years factoring in interest.
If you think increasing the debt like this inflationary, you are correct.
Trump says he will pay for this from Tariffs. Well, that’s a lie, pretty much like everything else he says.
Tariffs
Tariffs rate to put upward pressure on inflation. Companies that held off hiking did so because they stockpiled inventory and because of wild swings in Trump announcements including major TACOs on tariffs.
Tariffs have destroyed jobs. It’s easy to see in rapid deceleration of job growth. It’s a stagflationary impact at first, then a disinflationary impact.
Also in play this month is a ruling by the Supreme Court of reciprocal tariffs.
On November 16, 2025 I discussed What Are the Odds the Supreme Court Rules Against Trump on Tariffs?
The Supreme Court decision is not random. I discuss a framework.
My take then was 75-25 against Trump. I expect a 6-3 ruling. Click for an analysis justice-by-justice.
If tariffs are stricken, that will add to deficits. But Trump vows to put them back on by other means.
I think that is easier said than done. But it sure will add to confusion.
Labor Markets
Labor markets are definitely disinflationary. But one of the reasons the labor markets are weak (tariffs) are not disinflationary.
The latest jobs report was much weaker than it appeared on the surface. And I expect still more weakness.
However, the labor market was good enough to put the Fed on hold in January. And since there is no February FOMC meeting, the next chance for a rate cut is March 18.
Synopsis
There are hugely inflationary and disinflationary forces in play. You can see that in polls and you can see that in stubbornly high bond market yields.
My fear is Trump will get what he wants on military spending by giving Democrats more entitlement spending.
If so, coupled with medical care, that could be enough to offset all of the disinflationary forces of rent and labor markets, producing a mild stagflation.
I am keeping an open mind here, but a wait-and-see policy by the Fed is reasonable (and I am no Fed apologist).
I do not think there should be a Fed in the first place but a Fed is better than political hacks (in either party) manipulating interest for political purposes.
Related Posts
January 1, 2026: Three More Trump Tariff TACOs on Furniture, Kitchen Cabinets, and Pasta
To fight inflation, that Trump denies exists, comes another round of TACOs.
January 3, 2026: What Was the Overall Impact of Trump’s Tariffs in 2025?
Tracking the Economic Impact of the Trump Trade War
January 6, 2026: If the Supreme Court Rejects Trump’s Tariffs, What Are His Options?
I count seven options Trump is likely to try. There are serious problems with all of them.
January 9, 2026: AI Is Killing Select White Collar Jobs. What’s Hot and What’s Not?
Private education and health accounted for over 100 percent of job gains in 2025.
Two Main Sources of Disinflation
The two main sources of disinflation are jobs and rent. For a discussion of jobs, please see the previous link on AI and this one on the base report: Nonfarm Payrolls Rise by 50,000 with 76,000 in Negative Revisions
2025 closed out with a thud. Here are the details.
The two main sources of inflation now are rising unfunded Congressional spending and medical expenses.
Obamacare is “only” 24 million people. More importantly, Medicare and corporate health care costs will wise about 10 percent. That impacts everyone else.
For discussion, please see Health Care Inflation Bomb Makes the Fed’s 2 Percent Target Almost Impossible
Let’s discuss 2026 health care premiums and what they mean to the Fed’s preferred measure of inflation.
I sort of regret that title because It’s possible jobs collapse so much the Fed has a chance. But that’s one hell of a way to hit an inflation target.
Latest Genocide in GAZA for 27 months now. Nobody is helping.
To stop genocide EVERT SOCIAL MEDIA are our weapons.
Repeat the following:
Every first Sunday on every month
March for FREE PALESTINE.
Don’t thumb up but repeat yourself on every social media.
Finally! A decision from the Fed based on reason vs raw emotion. We’ve needed one of these for a good while now. Now Congress needs to do the same, by paring back fiscal spending.
paring back spending? in what universe ?
Reason and emotion were preemptively prosecuted by Trump’s DOJ in investigating Powell for disobeying Fat Joffrey’s mandate.
Trump is gonna break the system by removing Powell and neutering tbe Fed. Trump is literally breaking everything that has existed the last 100 years. The BIS has changed the rules on precious metals not backed by the physical precious metal itself. They are preparing for the end of the dollar.
Nobody on the right cares, so long as they keep owning libs and brown people
Speaking of political purposes…
“Federal prosecutors open criminal investigation into the Fed and Jerome Powell“
https://www.cnn.com/2026/01/11/business/federal-prosecutors-criminal-investigation-federal-reserve-chair-jerome-powell
Extra points for brazen audacity?
Mr. Powell just released a public statement, on a Sun. evening.
Thankfully, he is not resigning.
end the fed. ron paul nailed it in his book of that title. amerikans love to be scammed. pt barnum got it right. folks really enjoy being had.
Trump should be Happy about this. It appears we do not require one at this point. He should be talking that up! If we require one before the next meeting, for some unusual but serious reason, they can come back and do so.
AI has a lot of inflation built into the pipeline as evidence of SDRAM prices tripling in 18 months, the copper for data center construction, and the energy to run data centers. Long term AI will create deflation as people lose their jobs and default on debts. The Fed needs to address inflation first, and then deflation. If the Fed does a REALLY good job stomping short term AI related inflation, it might not have to worry about AI’s long-term deflation.
RMPs are estimated to be 220b over the next 12 months. But maintaining ample reserve conditions may interfere with the supply and demand for loan funds associated with free market interest rates.
The old questions will be asked “where are the Federal Reserve’s police” and where are the Supreme Court’s police?”
I suspect we will find out the disregard of Trump for the mandates and rulings of the Fed and SC
I heard a discussion of “neo-royalism” with respect to Trump today. A man who demands tributes and adulation, who rewards his buddies and punishes the people he doesn’t like. Where the gift to the ruler was always given as a matter of course and policies, such as tariffs were imposed as a means of putting others into subordinate positions. The king is not bound by habit, tradition or laws. This is a return to the 16th century.
I think we have a new king, eagerly accepted by 1/3 of the country with life or death power over the world with no-one in his circle to restrain him.
at the NYFED where the gold is stored for other countries, too, they have an army of sharp shooters inside. met them. spoke with them. seen the gold in sub basement 8 floors below on granite bedrock.
Mish, you’re right about health care….it cries out for some kind of intervention. Too many games played by insurers, hospitals and care providers. My cost of health insurance has gone up by 2000% since 1975. We don’t have enough doctors, they’re getting paid too much, rip offs and fraud abound in organized medicine. There are lots of models out there in different countries but we’ve got the most expensive model with longevity in America at #50, behind Panama and Albania.
In my country the laws requires for private healtcare providers to be nonprofits.
What country?
Thanks
France. Sécurité sociale (social security with 13 digits long social security numbers) which is the state health insurance covers only 60% of medical expenses outside disabilities diseases and 80% in the Alsace and Loraine regions.
The remaining is provided by mandatory private insurers called complémentaires santé https://fr.wikipedia.org/wiki/Compl%C3%A9mentaires_sant%C3%A9_en_France (the article doesn t exist on the english version). They have to be associations sans but lucratif.
Although nonprofits, the closest comparison in the US are the way credit Unions are regulated and operate in practice. Of course, as the governments cuts medical spending of sécurité social in the form of déremboursement over the last decades, complémentaire santé costs are soaring in proportion😬 (so cuts translate to costs offloading from the private to the public sector).
So in practice some the said nonprofits are subsidaries owned by for profit insurance companies that insure things like cars and homes which you subscribe to in the same office.
But hospitals under “Cliniques privées” can be for profit and more and more often you are pushed towards them because of capacity restraints of public hospitals makes getting appointments difficult.
https://fr.wikipedia.org/wiki/Code_de_la_mutualit%C3%A9 https://fr.wikipedia.org/wiki/Mutuelle_de_sant%C3%A9_en_France#Distinction_entre_mutuelles_sant%C3%A9_et_mutuelles_d'assurance (use automatic translation)
The US medical system was primarily as well until the late 1960’s early 1970’s.
I never read anywhere that the federal law required it anytime.
Countries like Germany, France, Japan, Switzerland, Belgium, and the Netherlands which use variations of the Bismarck model, that originated in Germany.
bingo. bismarck invented SS and medicare. and also stripped thinking in schools and made them vocational training. makes for workaholic nit wits. why hitler so easily bamboozled the germans.we copied the school model
You may also want to check out:
https://www.youtube.com/watch?v=h4rg-DJBd34
https://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/etc/script.html
Much of the US economy is fairly weak without much growth. AI DATA centers and chips from NVIDIA are driving growth. Without that we’re looking at .2% growth last quarter. So it’s hard to say what the FED will do….and when Trump starts appointing new FED members, rates will drop. He got massive rate drops in 2020 as the Trump economy cratered due to a 30% unemployment rate when much of the American economy shut down because of COVID, which was pretty serious. Over 1 million excess deaths….especially the elderly. COVID was killing a lot of vulnerable people. Now we’ve had no real recession since 2009, so we’re due. And the CPI, even the PCE, is not a reliable measure of inflation. Government has corrupted the numbers because of the way they count and weigh things. Rent, Real Estate taxes, insurance costs, car prices, house prices, food prices….That’s what drives much of the inflation now. We haven’t had a strong economy in many years…and the last real recession was from 2007 to 2009. I don’t count 2020-2021 because that was self-inflicted with inflation jacked up by zero interest rates & $6 trillion in new money for a year or two.
The start of the baby boom coincided with a massive excess births of over 1 million in 1945. Nobody has yet figured out how this could have possibly happened, but it did….and loving it.
2020 coincided with over 1 million excess people aging out and reaching the mortal limites of average life expectancy.
US deaths per year have been pretty consistently high since 2020 as excess births began over 81 years ago.
These excess death numbers will continue to be high until the bottle of pharmaceuticals is pryed from the cold dead fingers of the last living boomer.
Baby boomers are no longer babies, they are now geriatric boomers.