The key events for the w/c 19 January 2026: US PCE inflation, Q3 GDP (second est), BoJ meeting, key global CPI reports, prelim S&P PMIs Jan
As data flows normalise, the picture reveals a U.S. economy that is largely steadying, though not yet out of the woods, following the end of the government shutdown, significant trade upheaval, and elevated geopolitical risks. While growth remains resilient and the labor market shows signs of stabilising, these conditions remain sensitive to an environment of heightened geopolitical volatility. A more immediate concern is the potential for renewed uncertainty, especially around tariffs, to upend fragile business and household sentiment just as momentum may be building.
US inflation: Persistence without Acceleration
While the inflation data catch-up is still underway, the trajectory is one of steady consumer inflation, some pockets of rising input prices for producers, and lingering tariff pass-through risks.
Headline CPI for Nov came in as expected at +2.7%, unchanged from Oct, while core CPI edged up slightly to +2.7%. Although monthly rates showed a notable acceleration, this likely reflects distortions from the restart of data collection and a low Oct base. Importantly, the six-month annualised rates are little changed from the annual rates across most measures, suggesting that while inflation has remained persistent, it has not accelerated recently. Other measures of underlying inflation, such as the trimmed mean and the median, have slowed recently, reflecting some easing in inflation through the middle of the distribution.
The PPI for Oct and Nov showed some pressure on input prices for producers. Headline PPI increased to +2.95%, driven by goods prices increasing further to +3.1% (including energy) and construction costs rising to +2.7%. While services PPI remained stable at +2.9%, it has slowed through the year. Importantly, this week we will see how the CPI and PPI flow through into the Fed-preferred PCE inflation measure for Nov. Core PCE is expected to ease slightly to +2.7% in Nov, remaining within the year-end projection of +2.9%.
Ahead of the FOMC meeting next week, the most recent Beige Book for Jan highlighted some inflation risks in the outlook. The last four reports have reported inflation pressure not only from tariffs, but also from higher energy, utility, and insurance costs. While previous reports were mixed regarding the degree of pass-through, the Jan edition flagged risks of rising costs passing through to consumers as pre-tariff inventories are depleted and/or margin pressures mount.
Resilient Economic Activity
While inflation remains steady, yet persistent, it is doing so against a backdrop of surprisingly robust economic output. The latest Atlanta Fed GDP nowcast for the Q4 growth run-rate increased marginally to +5.3% by the end of last week. It’s important to note that just under half of this growth stems from distortions to net exports data (accounting for approx. 2% pts of the overall 5.3% run rate so far this quarter); however, even excluding net exports still leaves a respectable growth picture. The rebound in retail sales in Nov made only a modest, yet positive contribution to personal spending growth, while residential investment saw no net change (a small rise in existing home sales offset the fall in new home sales). Currently, residential investment is detracting -0.2% pts from Q4 growth. This ongoing weakness in the housing market was reflected in a further fall in the NAHB housing market sentiment for new home builders to 37 in Jan, the equal low of this cycle.
The Fed’s Beige Book commentary reflected an improved tone on economic activity in Jan. Regional reports have evolved from “neutral-mixed” in Sep to a “negative” low point in Nov during the shutdown. The latest report reflects slightly positive conditions and an improved outlook, though the view remains bifurcated by industry: consumer spending is being led by higher-income earners in a potential “holiday rebound,” while manufacturing remains mixed across districts.
Labor market stabilization versus fragility
Notably, this resilience in US growth is not translating into a revitalisation of hiring. While the broad labor market data for Dec was somewhat positive, given the fall in the unemployment rate, the Conference Board Employment Trends Index (ETI) for Dec continues to signal underlying weakness. The overall ETI fell in Dec, “reflecting low labor market confidence in the outlook for hiring and job-finding”.
The last four Fed Beige Book reports on the labor market highlighted weaker demand and elevated economic uncertainty affecting hiring decisions. This trend persisted in Jan, though the trend stabilised after the notably negative report in Nov. In Jan, the focus shifted from cutting to operational flexibility; terms like “backfilling vacancies” and “temporary workers” replaced the mentions of “layoffs” seen in the Nov report – a subtle, but positive shift.
Implications for the FOMC
US labor market conditions are likely to remain at the core of the debate for the FOMC next week. The two key Fed speeches last week reflect the current divide among FOMC members.
Fed Vice Chair Jefferson, who supported cuts last year, noted that the labor market appears to be stabilising, and that current policy is consistent with the neutral rate. He signalled a likely ‘hold’ for the next meeting, stating that “the current policy stance leaves us well positioned to determine the extent and timing of additional adjustments to our policy rate”.
Conversely, Vice Chair (Supervision) Bowman was more cautious. She noted that the labor market is still fragile and that policy is still restrictive, suggesting room for more cuts to reach neutral. Bowman argued that the FOMC should avoid signalling a pause until it has identified that labor market conditions have changed, and wants to maintain an “intentionally proactive and forward-looking” approach to policy setting. With markets pricing in a hold at the Jan meeting, Bowman may again dissent at the Jan meeting.
Broader Risks to Sentiment
The start of 2026 has been marked by significant volatility on the political front. President Trump’s weekend escalation regarding new tariff threats against the EU, linked to Greenland negotiations, adds a fresh layer of headline risk as he prepares to speak at Davos this week. These renewed threats may exacerbate general uncertainty for firms, risking a shift from a “fragile” sentiment to a defensive posture that could stall the momentum built in late 2025.
Outlook for the week ahead: US PCE inflation, Q3 GDP (second est), BoJ meeting, key global CPI reports, prelim S&P PMIs Jan
It will be a short week in the US due to the Martin Luther King, Jr Holiday on Monday.
The key focus in the US this week will be PCE inflation, spending, and income data for Nov and the second estimate for Q3 GDP. We are now in the blackout period ahead of the next FOMC meeting next week. Beyond the data, headline risk remains high regarding President Trump’s tariff threats and the ongoing geopolitical friction stemming from his proposal to negotiate the purchase of Greenland.
The BoJ kicks off global central bank meetings for 2026 this week.
Global CPI reports will feature this week: Canada, Japan, the UK, the Euro area (final), and NZ.
Key factors & events to watch this week:
US PCE inflation, spending, and income data for Nov, GDP Q3
Now that both the CPI and PPI for Nov have been released, the Fed’s preferred PCE inflation measure will be updated for Oct and Nov.
- US headline PCE inflation for Nov is expected to increase by +0.2% over the month in Nov. The most recent PCE inflation reading for Sep had increased to +2.8%, and is likely to ease in Nov.
- Core PCE is also likely to ease to +2.7% in Nov, from +2.8% at the last reading in Sep.
- Personal spending in Nov is expected increase by +0.5% in Nov, while personal income is expected to increase by +0.4% over the month in Nov.
- The second estimate for US Q3 GDP is expected to be confirmed at +4.3% (annualised).
Bank of Japan Meeting
- The BoJ is expected to keep policy settings unchanged at the latest meeting, after increasing its policy rate by 25bps to 0.75% at the Dec meeting.
Global CPI reports
- Canada CPI is expected to decline by -0.4% over the month in Dec, while the headline rate is expected to stay unchanged at +2.2% over the year. The BoC core measures of CPI – trimmed mean and median, are both expected to slow from +2.8% in Nov to +2.7% in Dec.
- Euro area headline CPI is expected to be confirmed at +2% over the year in Dec, and core CPI is expected to be confirmed at +2.3% over the year in Dec.
- Both the UK headline and core CPI are expected to increase to +3.3% over the year in Dec, from +3.2% in Nov.
- Japanese National core CPI (ex-fresh food) is expected to ease to +2.4% over the year in Dec, from +3% in Nov.
- NZ for Q4 is expected to slow to +0.5% over the quarter, from +1% in Q3. Headline inflation is expected to stay unchanged at +3%.
The prelim suite of S&P PMIs for key developed markets will be released later in the week, providing the first look at momentum and sentiment at the start of 2026.
Geopolitical and Political Context
Outside of the hard data, several political events will shape the broader macro environment.
Davos and Diplomatic Friction: President Trump is scheduled to attend and speak at the World Economic Forum in Davos this week. While he is expected to talk about US domestic housing policy, his appearance comes on the heels of renewed threats to purchase Greenland, citing “national security” reasons. This is likely to dominate discussions on the sidelines of the summit.
Tariff Uncertainty and Legal Rulings: Continued delays in the Supreme Court’s tariff rulings are expected to keep firms on edge. This legal uncertainty now extends to recent tariff threats levied against European nations.
Fed Governance and Leadership: The Supreme Court is also expected to hear arguments this week relating to whether President Trump can fire Fed Governor Lisa Cook. This decision could have long-term implications for the central bank, potentially redefining legal standards for the removal and tenure of board members. Meanwhile, the market awaits the announcement of a new Fed Chair nominee; notably, reports suggest that Kevin Hassett, previously a leading contender, may have been ruled out.
This week, the US Treasury will auction and settle approx $555bn in ST Bills, raising approx. $34bn in new money. The US Treasury will also auction the 10-Year TIPS and 20-Year Bond this week. Approx $34bn in ST Bills will mature on the Fed balance sheet and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
