Analysis: This year's inflation may far exceed expectations, and the Federal Reserve's rate cut prospects have changed

On January 16, 2026, at the beginning of the year, market concerns about a renewed acceleration of inflation have noticeably intensified. Several fund managers warn that soaring metal prices, AI-driven increases in energy and infrastructure costs, and the uncertainty surrounding the independence of the Federal Reserve following Trump’s plan to replace the Fed Chair in May could cause inflation levels this year to far exceed previous expectations. Currently, inflation remains above the Federal Reserve’s 2% target. If price pressures intensify further, the market’s previous expectation of two rate cuts in 2026 (each by 25 basis points) may become unfeasible, and there is even a risk of no rate cuts throughout the year. Although the US stock and bond markets have not fully priced in this risk, some institutions have already begun to adopt defensive strategies. Several investors pointed out that if the 10-year US Treasury yield breaks above 4.3%, it could serve as an important warning signal of inflation and financial market pressures.