January’s Federal Reserve meeting is fast approaching, and expectations are firmly set that interest rates will remain unchanged at the first FOMC gathering of 2026. Recent inflation data has reinforced that outlook, with December’s core and headline figures largely coming in as expected, reducing the likelihood of an immediate rate cut. The Federal Reserve is now turning its attention to its preferred inflation gauge, with new data scheduled for release this week. The most recent Personal Consumption Expenditures readings currently reflect September figures due to the prior U.S. government shutdown, while labor data from November and December shows declines in layoffs and a drop in the unemployment rate to 4.4%.
To break down what the data means, FintechTV’s Remy Blaire spoke with Stephen Kates, a financial analyst at Bankrate. Kates offered perspective on how recent inflation and labor market trends are shaping expectations for monetary policy in the months ahead. He noted that the latest CPI report provided a measure of relief for consumers, confirming that inflation continues to cool. That trend supports a more optimistic economic outlook as markets look ahead to the Fed’s January decision.
Attention is now shifting to the upcoming PCE report, which often tells a different story than CPI by capturing consumer spending patterns more broadly. Kates explained that this data could offer clearer guidance for policymakers as they weigh potential rate cuts later in the year. While markets are largely convinced that January will pass without action, the new figures could influence expectations for cuts in March or during the second quarter.
On the labor front, Kates pointed to lingering concerns despite some encouraging headlines. He highlighted weakness in the November Job Openings and Labor Turnover Survey (JOLTS), noting that job growth remains sluggish. While the past two months have shown positive employment gains, job openings continue to decline and hiring rates are near historic lows. That combination suggests caution on both sides of the labor market, with employers reluctant to add staff and workers hesitant to make moves. According to Kates, a return to the rapid job growth seen in prior years appears unlikely in the near term.
Layoffs remain a reality across parts of the economy, particularly within the technology sector. Kates described the current environment as a “no hire, no fire” economy, where movement is limited and job seekers feel increasingly constrained. Although initial and continuing jobless claims remain low, he cautioned that those figures may not fully capture labor market stress.
Kates emphasized that low claims numbers can mask underlying weakness, as some unemployed workers may not file for benefits at all. Persistent softness in hiring and historically low quit rates point to waning confidence among workers. For those seeking new opportunities or considering a job change, the market has shifted away from the employee-friendly conditions seen in recent years, making transitions more difficult and frustrating.
As the Federal Reserve prepares to meet, policymakers are weighing signs of progress on inflation against ongoing challenges in the labor market. With 2026 now underway, the interaction between these forces will be critical in shaping monetary policy and consumer sentiment. While easing inflation offers encouragement, persistent labor market frictions remain a key variable. Together, these dynamics are set to play a central role in defining the economic outlook in the months ahead.