“Inflation is defeated,” according to President Donald Trump. That might be an overstatement, but it’s right to celebrate the strength of the U.S. economy, so long as a few lurking risks can be overcome.
The U.S. ended 2025 with consumer-price inflation of 2.7% and an unemployment rate of 4.4%. Those are pretty good figures for a year featuring the implementation of tariffs and a prolonged government shutdown. The picture has gradually got brighter—World Bank economists now estimate the U.S. economy grew by 2.1% last year, well above the 1.4% growth they expected in June.
This year could be better if some risks are managed. The first is the effect of tariffs. Companies appear to be largely swallowing the cost of import taxes so far, or at least only raising prices slowly. But executives
need stability. If the White House continues tinkering with tariffs—either by choice or because a Supreme Court decision forces a change—then the capacity to manage costs caused by the levies could be eroded.
Second is the risk of a geopolitical shock. So far the market has shrugged off events in Venezuela but intervention in Iran could provoke a bigger reaction. Oil prices are at their highest level since late October amid threats of U.S. military action to support protesters against Tehran’s regime. That’s a regional issue, but a global concern would be the breakdown of NATO over Trump’s desire to acquire Greenland, or Beijing testing U.S. resolve to defend Taiwan.
Third is the issue of waning economic credibility. The biggest danger is the perception that the Federal Reserve is losing its independence as Trump leans on the central bank to lower interest rates. JPMorgan CEO Jamie
Dimon warned Tuesday that political interference with the Fed would cause inflation and interest rates to go up.
Pointing out positives for the economy is what presidents do. But the nature of the market is that
the risk of a mishap is never truly defeated, only contained.
—Adam Clark
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December Consumer Price Index Doesn’t Signal January Rate Cut
Inflation closed out 2025 at 2.7%, down from September’s 3% high, but probably too hot to persuade Federal Reserve policymakers to cut interest rates at their meeting this month. Inflation has remained above the Fed’s 2% target for more than four and a half years.
- Core inflation, excluding more volatile food and energy costs, stayed at 2.6%. Seema Shah, chief global strategist at Principal Asset Management, expects inflation to remain slightly elevated this year, and Santander’s Stephen Stanley is bracing for a wave of tariff-related price hikes.
- Grocery price inflation stood out. Food prices rose 3.1%, and prices rose across most major categories except eggs, which fell 8.2%. The food-at-home index rose 2.4% from a year earlier, while the cost of dining out rose 4.1%. Food prices are a sore point for consumers even as the White House argues that they are down.
- Higher grocery bills coincide with bumps in the premiums many households will pay for Affordable Care Act health plans because Congress didn’t extend subsidies to cover those costs. And utility bills have also been rising. Primerica CEO Glenn Williams told MarketWatch middle-income families have been underwater for five years.
- President Trump’s attacks on the Federal Reserve could backfire, according to JPMorgan Chase CEO Jamie Dimon. An investigation by the Justice Department into Fed Chair Jerome Powell risks undermining confidence in the central bank and could push interest rates higher, Dimon said.
What’s Next: Although the CME FedWatch tool puts the probability of a January rate cut at nearly zero, the relatively modest pace of inflation, especially compared with the middle of 2025, could give Fed officials room to cut rates at the policymaking meetings in March, April, or even June.
—Megan Leonhardt and Janet H. Cho
Banks Join Resistance to Trump’s Credit Card Rate Cap
Resistance to President Trump’s demand to cap credit card interest rates at 10% is
growing. Banks have long opposed such a cap because it would meaningfully reduce profit from the business, and card issuers and influential bank lobbyists say it could crimp credit availability. Lawmakers also sound skeptical.
- JPMorgan CFO Jeremy Barnum said such a move would be bad for consumers and the economy. Trump wants the limit to take effect this month, though he hasn’t said how the plan would be carried out. JPMorgan’s Barnum said the bank would have to cut its cards business back significantly.
- JPMorgan’s fourth-quarter profit fell in part because of the financial impact of its deal to become Apple’s new credit card issuer. The transaction shaved 60 cents off per-share earnings, JPMorgan said. Without the related impacts, fourth quarter EPS beat expectations. Firm revenue rose 7% to $45.8 billion.
- House Speaker Mike Johnson told reporters when asked about Trump’s 10% cap that it could have unintended consequences, and Congress would have to approve a cap. He called it an out of the box idea but realizing it as part of an affordability push would have to be approached in a deliberate manner.
- Trump has also taken aim at credit card swipe fees. He called on lawmakers to support a bipartisan bill that targets the nearly $200 billion in fees collected by the payments industry each year from consumers swiping their cards at stores.
What’s Next: Trump said Tuesday that he
will announce other plans to lower costs soon. That includes initiatives to reduce healthcare costs and to make housing cheaper. He’s also planning to give a major speech on affordability at the World Economic Forum in Davos, Switzerland, this month.
—Rebecca Ungarino and Joe Light
Under Pressure to Cover Costs, Tech Addresses AI Power Use
The boom in AI data center building has prompted a backlash over the rising cost of
electricity to power the facilities, with government officials including President Trump calling on tech giants to pay their share of the tab. Microsoft announced just such a plan in a blog post by its President Brad Smith.
