US Inflation Eases, Fed Holds Steady Amidst Powell Probe and Corporate Earnings

The US financial landscape in early 2026 presents a complex tapestry of economic indicators, corporate performance, and geopolitical tremors. At the heart of it all, the latest Consumer Price Index (CPI) report signals a reassuring moderation in inflation, paving the way for the Federal Reserve to maintain its current interest rates. Yet, beneath this seemingly stable surface, a criminal probe into Fed Chair Jerome Powell and a mixed bag of corporate earnings from Wall Street giants like JPMorgan are injecting fresh layers of uncertainty into market dynamics.

Inflation’s Steady Hand Guides Market Expectations

The December 2025 CPI report, released in January 2026, offered a much-anticipated picture of consumer price trends, especially after disruptions caused by a record government shutdown earlier in the year. The data revealed that inflation pressures remained largely stable, aligning closely with economists’ forecasts. The annual headline rate settled at 2.7%, with a monthly increase of 0.3%. Critically, the ‘core’ CPI, which strips out the more volatile categories of food and energy, rose by a more modest 0.2% over the month and 2.6% over the year, actually coming in less than economists had anticipated.

This milder inflation reading was a welcome development for markets, reinforcing bets that the Federal Reserve would hold rates steady. For some time, inflation has stubbornly hovered above the Fed’s 2% target, but its gradual downward drift over the past year has led policymakers to view it as a less acute risk compared to a potential dramatic softening of the labor market. As Yahoo Finance reported, this data provides the clearest picture of trends in months, allowing for a more accurate assessment of the economic trajectory.

However, the path to accurate data collection was not without its bumps. The government shutdown had altered the release schedule for September and November’s inflation reports, even leading to the cancellation of October’s data. This necessitated the Bureau of Labor Statistics (BLS) to use ‘carry-forward imputation’ for some estimates, raising concerns among analysts. Bank of America’s US economics team, for instance, suggested this method could bias the December measure slightly higher, as it compared December prices to August in certain sampled cities instead of October.

Corporate America Navigates Earnings Season and Geopolitical Headwinds

As the December CPI figures settled, corporate earnings season unofficially kicked off, bringing its own set of insights and challenges. JPMorgan Chase (JPM) led the charge, posting fourth-quarter results that, while beating revenue estimates, missed earnings expectations. The miss was largely attributed to a significant $2.2 billion hit to net income from its deal to take over the Apple Card from Goldman Sachs (GS). Excluding these specific costs, JPMorgan’s earnings per share would have comfortably surpassed Wall Street’s predictions, highlighting the impact of strategic acquisitions on immediate financial performance.

Despite the earnings miss, JPMorgan’s stock saw a modest rise, reflecting perhaps a broader market understanding of the underlying operational strength. CEO Jamie Dimon acknowledged the US economy’s ‘resilient’ nature, noting continued consumer spending and generally healthy businesses. Yet, he also cautioned against market complacency, pointing to ‘potential hazards—including from complex geopolitical conditions, the risk of sticky inflation and elevated asset prices.’ This sentiment underscores the delicate balance companies must strike between capitalizing on current economic health and preparing for unforeseen challenges.

Other significant corporate news included Delta Airlines, which posted record adjusted revenue but saw its growth impacted by the government shutdown. Looking ahead, Delta projected strong growth for Q1 2026 and the full year. Meanwhile, technology and healthcare sectors also saw movement: Intel (INTC) stock rose on strong demand for CPUs, and Revvity (RVTY) climbed after raising its full-year outlook. In a geopolitical-tinged development, L3Harris announced it would spin off its rocket motor business, backed by a $1 billion government convertible security investment, a move that follows President Trump’s administration weighing equity stakes in major defense contractors, including Lockheed Martin, as reported by Reuters.

Federal Reserve Independence Under Scrutiny Amidst Political Tensions

Perhaps the most unsettling undercurrent in the market is the escalating tension surrounding the independence of the Federal Reserve. A US criminal probe into Fed Chair Jerome Powell, investigating whether he lied to Congress, has ignited widespread concern. This investigation is perceived by many, including Powell himself, as a ‘pretext’ to undermine the central bank’s autonomy, a cornerstone of economic stability.

The implications of such a probe are far-reaching. JPMorgan CEO Jamie Dimon, while acknowledging past disagreements with the Fed, expressed ‘enormous respect for Jay Powell’ and emphasized the critical importance of Fed independence. ‘Anything that chips away at that,’ Dimon warned, ‘is probably not a great idea… it will raise inflation expectations and probably increase rates over time.’ His sentiment was echoed by BNY Mellon (BNY) CEO Robin Vince, who highlighted that independent central banks are a ‘pretty well established thing that we’ve seen all around the world over a very long period of time, and it’s served economies and capital markets really well.’ Vince articulated the fear that ‘shaking the foundation’ of Fed independence could counter the administration’s stated goals of reducing borrowing costs and making everyday living more affordable, potentially pushing interest rates higher.

The political pressure on Powell has evidently led to a shift in his posture, moving from appeasement to a more assertive defense of the Fed’s role. This dramatic turn has not only alarmed financial leaders but also prompted warnings from lawmakers, including members of the president’s own Republican party and Treasury Secretary Scott Bessent, about the potential negative repercussions for markets. Gold, often seen as a safe haven, steadied near record highs amidst these worries, reflecting investor anxiety over the stability of financial institutions and the potential for political interference to destabilize the US bond market, arguably the most important market in the world.

The confluence of easing inflation and robust corporate activity typically signals a benign economic outlook. However, the shadow cast by the criminal probe into Fed Chair Powell, coupled with President Trump’s assertive geopolitical and domestic economic policies, introduces an unprecedented layer of political risk. This situation threatens not only the perceived impartiality of monetary policy but also the foundational trust in institutions that underpins global financial stability, potentially forcing markets to price in an unwelcome political premium.