Fed's dual mandate in tension

-   Headline CPI seen easing to 2.5% y/y; core pressures mixed
-   Strong January payrolls; wages and workweek firm
-   Benchmark revisions trim employment trend
-   Fed officials signal no rush to move on rates

By Harry Daniels
LiveSquawk News
@HarryDaniels71

12 February 2026 | 15:30 GMT

It has been a bumper week for top-tier US data, with Friday’s inflation report set to crown proceedings.

Headline CPI is forecast to cool to 2.5% y/y in January from 2.7% previously. On the month, prices are expected to rise 0.3%, matching December’s pace. Annual core CPI is seen at 2.5%, a tenth lower than the prior reading, while the monthly core gauge is projected to print 0.3%, a tenth firmer than last time.

Citi analysts expect inflation to soften further, reinforcing the view that weaker Q4 prints were not solely the result of measurement distortions linked to the government shutdown. Such an outcome would also reaffirm that underlying price pressures are becoming increasingly contained.

Last month, the Bureau of Labor Statistics reported that upward pressure stemmed from recreation, airline fares, medical care, apparel, personal care and education. These gains were partly offset by declines in communication, used cars and trucks, and household furnishings and operations.

“The most important details of January CPI to us will be various services prices, both shelter and non-shelter services,” Citi said. “We continue to expect slowing shelter inflation over 2026, which could mark a material shift towards softer inflation this year compared with last.”

Source: Bureau of Labor Statistics, Barclays Research, Haver Analytics

On Wednesday, the BLS said January nonfarm payrolls rose 130,000, comfortably above the 68,000 consensus. Gains were concentrated in health care, social assistance and construction, offsetting job losses in federal government and financial activities. The unemployment rate edged down a tenth to 4.3%, though it remains above the 4.0% level seen a year earlier.

Average hourly earnings increased 0.4% m/m, ahead of the 0.3% forecast and prior reading. On a y/y basis, earnings rose 3.7%, in line with expectations but a tenth softer than December. The average workweek ticked up by 0.1 hour to 34.3 hours.

As is typical in January, the BLS released its annual benchmark revisions. On a seasonally adjusted basis, total nonfarm employment for March was revised down by 898,000. On an unadjusted basis, payrolls were lowered by 862,000, equivalent to a 0.5% reduction.

Barclays’ Jonathan Millar said income dynamics remained broadly supportive of consumer spending despite the slower trajectory of headline job gains. He noted that January’s report implied solid payroll income growth, largely reflecting the longer workweek.

In terms of monetary policy, Fed officials appear more focused on labour-market conditions than on marginal shifts in inflation.

Despite the heavy data flow, most analysts do not expect a material shift in the near-term policy outlook.

Federal Reserve President Beth Hammack struck an upbeat tone on Tuesday, acknowledging the challenges of the past year but arguing that the outlook is improving.

“Many forecasts, including my own, call for some easing in inflation over the course of this year. At this point, I believe monetary policy is in a good place to stay on hold as we assess the incoming data and weigh if, and how, policy may need to adjust further,” she said.

Barclays continues to expect the FOMC to deliver two 25bp rate cuts this year, in June and December. “This is conditioned on the FOMC seeing evidence this spring that cost-push pressures from tariffs are receding, and that the labour market is not tightening sufficiently to reignite concerns about upward wage pressures,” Millar said. “We see risks tilted to the upside, with the FOMC potentially delaying the timing of rate cuts amid stubbornly elevated inflation and a more resilient economy.”