Update for Week 02 of 2026

Date: 2026-01-09

The economic landscape as of the second week of January 2026 presents a mixed picture. Inflation remains a key concern, although there are signs of moderation in certain sectors. The labor market continues to show resilience, but potential headwinds are emerging. The housing market is navigating the complexities of rising mortgage rates, and overall economic growth is being closely monitored for signs of a slowdown. Monetary policy remains focused on balancing inflation control with supporting sustainable economic expansion.

1. Inflation

Inflation remains a primary concern, although recent data suggests a potential moderation in certain sectors. The persistence of elevated prices is impacting consumer spending and business investment decisions.

  • Headline CPI/PCE: Specific CPI and PCE data for December 2025 will be closely watched when released, as they will provide insights into the recent inflation trends. Any signs of easing price pressures would be welcomed by policymakers and markets alike.
  • Energy Prices: Crude oil prices are a key factor influencing inflation expectations. Geopolitical tensions and supply chain dynamics continue to contribute to price volatility.
  • Food Prices: Food price inflation remains a concern for households, particularly those with lower incomes. Supply chain disruptions and adverse weather conditions are contributing factors.

Quote: “We are committed to using our tools to bring inflation back to our 2% target.” Jerome Powell, Federal Reserve Chair, Federal Reserve Press Conference, 2025-12-17

2. Employment

The labor market continues to exhibit strength, but there are emerging signs of potential moderation. The unemployment rate remains low, but job openings are showing signs of declining.

  • Unemployment Rate: The unemployment rate is holding steady at a low level, indicating a tight labor market. However, it’s important to monitor for any potential increases in unemployment claims.
  • Job Openings (JOLTS): The JOLTS report is being closely watched for signs of cooling demand for labor. A decline in job openings could signal a potential slowdown in hiring.
  • Wage Growth: Wage growth remains elevated, but there are indications that it may be moderating. Slower wage growth could help to ease inflationary pressures.

Quote: “The labor market remains strong, but we are seeing some signs of moderation in wage growth.” Nela Richardson, Chief Economist, ADP, ADP Employment Report, 2026-01-08

3. Housing Market

The housing market is facing challenges from rising mortgage rates and affordability concerns. Home sales are declining, and construction activity is slowing.

  • Mortgage Rates: Mortgage rates have been trending upward, making it more expensive for potential homebuyers to finance purchases. This is impacting demand and putting downward pressure on home prices.
  • Home Sales: Home sales are declining as a result of higher mortgage rates and affordability constraints. The inventory of homes for sale is increasing, which could lead to further price declines.
  • Construction/Starts: Construction activity is slowing as builders respond to declining demand. Housing starts are expected to decline in the coming months.

Quote: “The housing market is adjusting to the new reality of higher interest rates.” Lawrence Yun, Chief Economist, National Association of Realtors, Existing Home Sales Release, 2025-12-19

4. GDP & Economic Growth

Overall economic growth is being closely monitored for signs of a slowdown. GDP estimates for the fourth quarter of 2025 will provide insights into the recent pace of economic activity.

  • GDP Estimates: GDP estimates for the fourth quarter of 2025 are expected to show moderate growth. However, there are concerns that economic growth could slow further in the coming months.
  • Manufacturing/Services PMIs: The Purchasing Managers’ Index (PMI) for both manufacturing and services sectors are being watched for signals about the health of the economy. A reading below 50 would indicate a contraction in economic activity.
  • Consumer Confidence: Consumer confidence remains subdued, reflecting concerns about inflation and the economic outlook. Weak consumer confidence could weigh on spending and economic growth.

Quote: “The economy is facing headwinds from inflation and higher interest rates.” Jason Furman, Professor of Practice, Harvard University, Interview on Bloomberg, 2026-01-07

5. Monetary Policy

Monetary policy remains focused on balancing inflation control with supporting sustainable economic expansion. The Federal Reserve is expected to continue to raise interest rates gradually in the coming months.

  • Interest Rates: The Federal Reserve has been raising interest rates to combat inflation. Further rate hikes are expected in the coming months.
  • Fed Speak/Guidance: Federal Reserve officials are communicating their commitment to bringing inflation back to the 2% target. They are also emphasizing the need to remain data-dependent in their policy decisions.
  • Market Expectations: Market participants are expecting the Federal Reserve to continue to raise interest rates in the coming months. However, there is uncertainty about how high interest rates will ultimately need to go.

Quote: “We will continue to monitor the data closely and adjust our policies as needed to achieve our goals.” John Williams, President, Federal Reserve Bank of New York, Speech to the Economic Club of New York, 2026-01-06

Conclusion

The economic outlook for the coming weeks is uncertain. Inflation remains a key concern, and the housing market is facing challenges. The labor market continues to show resilience, but there are emerging signs of potential moderation. The Federal Reserve is expected to continue to raise interest rates, which could further slow economic growth. Close monitoring of economic data and policy developments will be crucial in navigating the challenges ahead.