A fresh set of U.S. economic indicators had investors gauging how resilient consumer activity and a softer-than-expected rise in a key inflation measure might alter the outlook for interest rates. The consumer price index was up 2.7% year-over-year in December, unchanged from the previous month. Core inflation, which strips out food and energy prices, also held steady at 2.6%. That matched a nearly five-year low and settled below a consensus estimate of 2.8%, according to a Dow Jones poll. A separate report on wholesale inflation in November suggested that underlying price pressures held firm, as higher energy costs left the producer price index up 3% year-over-year. Meanwhile, November retail sales grew 0.6% in a healthy start to the holiday shopping season, based on Census Bureau data. Existing home sales posted their biggest gain in nearly two years, growing 5.1% in December, the National Association of Realtors reported.

While market participants await a Supreme Court decision on some U.S. tariffs, inflation readings added fuel to the debate over how the Federal Reserve might balance conflicting economic indicators and the potential for renewed trade uncertainty. In a speech on Monday, New York Fed President John Williams said monetary policy is “well positioned” to support the Fed’s goals. Philadelphia Fed President Anna Paulson, who joins the policy-setting committee this year, said Wednesday “some modest” adjustments to the fed funds rate could come later in 2026 if inflation moderates, the job market stabilizes, and growth slows to around 2%. Fed Governor Stephen Miran observed that deregulation in the U.S. is reducing inflation and lifting potential growth, which he said would support further policy easing.

Political tensions around the Fed returned to the spotlight this week after it was served with grand jury subpoenas in an investigation over the central bank’s building renovations. PGIM's latest edition of the Weekly View from the Desk examines potential ramifications for monetary policy and financial markets.