US INFLATION
Inflation is one of the most talked-about economic measures in the U.S. — and for good reason. When inflation gets too high, everyday items like food and rent cost more, and consumers begin to grumble. Most economists prefer inflation to run at a low, steady pace — generally around 2% — since mild inflation is considered a sign of a growing economy. Too much inflation can cut purchasing power and can destabilise markets. Inflation and interest rates are closely linked. Central banks, like the U.S. Federal Reserve (Fed), use interest rates as a primary tool to slow or stimulate the economy — and try to steer inflation toward a target level.
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INFLATION: an explainer
What exactly is inflation? It’s a gradual increase in the prices of everyday things — like rising public transport or coffee prices, that cost more than they did a few years ago. A little inflation is generally considered healthy, as it encourages spending and investment. If prices don’t change, businesses might not grow, and workers might spend less, slowing economic activity. Japan is an example of a low inflation and low growth economy in recent years. But when inflation gets too high, prices rise faster than wages, and people feel poorer because their money doesn’t buy as much as before, leading to uncertainty and slower economic growth.
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US INFLATION: How many Fed rate cuts are expected this year?
Over the past year, inflation in the U.S. has fallen from higher levels seen in the early 2020s. Most recent figures show the headline inflation rate in the U.S. has declined slightly, although the latest 2.7% figure remains above the target rate. President Trump has pointed to these “low inflation” readings to argue that the Fed should cut interest rates more aggressively.
Markets are currently pricing in about 1-2 cuts by the Federal Reserve in 2026, with the first cut expected in June, though rate moves are uncertain and could change depending on how the data evolves.
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HOW THE FED USES INFLATION DATA
The Federal Reserve, is the central bank of the United States. One of its key jobs is to manage inflation and employment through monetary policy. The Fed looks at inflation numbers — especially the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) index — along with data like the nonfarm payrolls (employment data) and economic growth, when deciding whether to change interest rates.
When inflation is above target, the Fed usually raises interest rates to slow demand in the economy. If inflation is too low or the economy is sluggish, the Fed may cut interest rates to stimulate growth.
Changes in the Fed’s policy rate impact the economy: they influence mortgage rates, credit card interest, investment decisions, and stock markets. The impact is also felt in the currency markets and on Gold prices in particular.
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CURRENT FED POLICY AND RECENT RATE MOVES
In 2025 the Fed began a series of rate cuts as inflation came down and more recently, employment rates fell. The most recent cut was in December and the Fed signaled further cuts. Going into 2026, the Fed is expected to cut rates up to 2 times. The markets currently expect the first cut to be in June.
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POLITICAL PRESSURES AND THE TRUMP-POWELL CONFLICT
The relationship between the Federal Reserve and the White House may be at its worst since 1965, when President Johnson reportedly pushed then Chair McChesney Martin against a wall after the Fed increased rates! President Trump has openly pressured Fed Chair Jerome Powell to cut rates quickly, but the Fed has resisted. Recently, this pressure escalated when the U.S. Department of Justice opened a criminal investigation into Powell — a move Powell and others see as politically motivated. This conflict has triggered debate about Fed independence, with many on Wall Street voicing support for keeping monetary policy independent. Powell’s official term as Fed Chair will end in May 2026, and President Trump is expected to nominate someone more likely to cut interest rates.
Conclusion –
Inflation and interest rates are key to the U.S. economic story in 2026. With inflation cooling, and the Fed balancing data against political pressure, markets are pricing in rate cuts this year. As inflation trends toward target levels and economic data evolves, the result will have a great impact on the financial markets and on the lives of Americans and others beyond.