Cleveland Fed Updates Long-Term Inflation Outlook as Data Reliability Concerns Persist
Cleveland, Sunday, 21 December 2025.
The Federal Reserve Bank of Cleveland has released its latest long-term inflation expectations, providing a crucial benchmark as markets grapple with distorted consumer price data. While the 10-year expected inflation rate stands at 2.7%, the 25-year projection remains elevated at 3.1%, signaling persistent long-term cost pressures. This release comes at a pivotal moment; the November 2025 CPI report was marred by significant data collection failures in October, prompting Fed Chair Jerome Powell to warn against over-interpreting the apparent softness in prices. For investors strategizing for 2026, the Cleveland Fed’s multi-decade outlook offers a more stable gauge of inflation risks than recent, methodologically compromised government statistics.
Analyzing the Data Reliability Crisis
The timing of the Cleveland Fed’s release is particularly significant given the current crisis of confidence in short-term government statistics. On December 19, 2025, the Bureau of Labor Statistics (BLS) released a November CPI report that analysts have described as a “mess” [1]. The core issue stems from a severe data collection failure; the BLS was unable to collect survey data for the October 2025 reference period, necessitating a carry-forward of September index levels [1]. Consequently, the reported year-over-year headline CPI of 2.74% and core CPI of 2.63% are viewed by major financial institutions like Morgan Stanley and Nomura as containing a significant “downward bias” [1]. Federal Reserve Chair Jerome Powell explicitly addressed these irregularities earlier this month, warning that because data was not collected in October and half of November, the central bank would need to view the figures with a “skeptical eye” [1].
Anchoring Expectations in a Volatile Environment
This statistical uncertainty elevates the utility of the Cleveland Fed’s model, which synthesizes Treasury yields, inflation swaps, and survey-based measures to estimate inflation expectations over a multi-decade horizon [2]. While the noise in monthly data complicates the immediate policy picture, the long-term signals are flashing warnings of entrenched costs. The Cleveland Fed’s latest model pegs the 10-year expected inflation rate at 2.7% [3]. More telling is the 25-year projection, which sits even higher at 3.1% [3]. These figures suggest that despite the Fed’s efforts to cool the economy—efforts that have brought the federal funds rate to a range of 4.0% to 4.25% as of September 2025 [1]—markets are pricing in a future where inflation remains stubbornly above the central bank’s traditional 2% target.
The Path to 2026
The Federal Reserve now faces a delicate balancing act as it approaches its January meeting. With the November data effectively compromised, policymakers have signaled they will rely heavily on the “clean” December CPI report, due in mid-January, to determine if further rate cuts are appropriate [1]. The Fed projects PCE inflation to average 2.9% in 2026 [3], a forecast that aligns closely with the Cleveland Fed’s long-term risk premiums but leaves little room for policy error. As 2025 draws to a close, the divergence between flawed short-term data and steady long-term projections highlights the complexity of the current economic landscape. While the “missing” October data has temporarily obscured the true state of consumer prices, the Cleveland Fed’s multi-decade outlook provides the clarity needed for long-horizon planning [3].