Cleveland Fed Inflation Data Signals Shift in 2026 Price Stability Outlook

2025-12-20 economy

Cleveland, Saturday, 20 December 2025.
Cleveland Fed data reveals a modest 0.1% rise in November’s median CPI, a crucial metric for gauging price stability as the FOMC projects 2.5% core inflation for 2026.

November Core Metrics Show Cooling

The latest inflation data provides a granular view of the price pressures facing the US economy. According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index (CPI) rose 0.1% in November, a figure that matches the 0.1% increase observed in the 16% trimmed-mean CPI [1]. These measures, which exclude extreme price changes to reveal underlying trends, suggest a continued moderation in price growth. On a year-over-year basis, the median CPI stands at 3.1%, representing a 0.4 percentage point decline from the 3.5% recorded in September [1]. Similarly, the trimmed-mean CPI has decelerated to 2.9% year-over-year, down from 3.3% in the previous period [1]. These figures offer a degree of validation for the Federal Reserve’s restrictive policy stance as the year concludes.

FOMC Projections and Growth Revisions

This recent data dovetails with the broader economic outlook released by the Federal Open Market Committee (FOMC) in its December 2025 Summary of Economic Projections (SEP). The median FOMC participant now projects core inflation to stabilize at 2.5% in 2026 [2]. Alongside this inflation outlook, the Federal Reserve has revised its growth expectations upward; real GDP growth is projected to accelerate to 2.3% in 2026, a marked improvement of 0.6 percentage points over the 1.7% revised projection for 2025 [2]. The labor market is also expected to tighten slightly, with the unemployment rate projected to dip to 4.4% by the fourth quarter of 2026, down from 4.5% in late 2025 [2].

Analyzing Statistical Anomalies

Despite the optimistic headline figures, financial analysts warn that the November CPI report contains statistical irregularities that may obscure the true inflation picture. Some market observers have characterized the release as a “Swiss Cheese CPI report” due to significant gaps in the data [3]. A primary point of contention is the treatment of shelter costs; the data implies no inflation for rent and Owners’ Equivalent Rent (OER) in October, which mechanically dragged down the November CPI level [3]. Additionally, the sampling period for November was truncated to the latter half of the month [3]. This timing coincided with pervasive holiday discounting, which likely biased the surveyed prices downward and may have overstated the cooling effect [3]. Consequently, while the “downside surprise” was welcomed by some administration officials, the structural anomalies suggest the need for caution in interpreting these results as a definitive signal [3].

Long-term Expectations and Banking Dynamics

Looking beyond the immediate volatility of monthly reports, the Cleveland Fed has also updated its 1-Year and 2-Year Expected Inflation estimates [4][5]. These forward-looking metrics are derived from a complex model that integrates Treasury yields, inflation swaps, and survey-based measures to estimate the inflation risk premium [4]. Understanding these expectations is critical for the banking sector, particularly as institutions navigate the reallocation of physical capital. A recent working paper from the Cleveland Fed highlights that a bank’s engagement in capital reallocation can dilute its incentives to monitor borrowers, potentially necessitating greater involvement in loan syndication to manage credit risk [6]. As the economy transitions into 2026, these structural shifts in credit contracts will be pivotal for maintaining financial stability alongside price stability.

Future Outlook

To provide further clarity on these evolving trends, the Federal Reserve Bank of Cleveland will host its annual “Fed Talk: 2026 Economic Outlook” on January 15, 2026 [7]. Ed Knotek, the senior vice president and director of research, is scheduled to analyze the incoming economic indicators, including the labor market, consumer spending, and the impact of AI-related business investments [7]. This session will be instrumental for market participants seeking to reconcile the conflicting signals between the recent “Swiss Cheese” CPI data and the Federal Reserve’s confident growth projections for the year ahead.

Sources

Monetary Policy Inflation Expectations