For much of 2024, the inflation story looked like it was ending. Prices were moderating. The Fed was signaling cuts. The soft landing seemed within reach.
The 2025-26 data has complicated that story.
Core inflation has reaccelerated. And the components that matter most for the durability of inflation remain elevated.
But, importantly, this is no longer an energy story.
Early in this cycle, it was easy to blame oil. Now the pressure is showing up in the stickier, more structural places like labor markets and services pricing. Those don’t respond to a single supply shock or a good month of data. They reflect deeper dynamics that take time to work through.
Markets are beginning to answer and rate cut bets are fading. The odds of renewed hikes are climbing, and bond markets are likely to push yields higher as expectations tighten.
If inflation is more embedded than previously believed, the Fed’s flexibility shrinks. It can’t ease into persistent inflation without risking credibility.
