Cooling CPI has strengthened bets on Fed rate reductions and brightened the outlook for mortgage borrowers
US inflation’s January slowdown sharpened the focus on what the Federal Reserve might do next – and what that could mean for mortgage rates heading into the spring homebuying season.
Consumer prices rose 2.4% year over year in January, down from 2.7% in December and the lowest reading since May 2025, according to the Bureau of Labor Statistics.
On a monthly basis, headline CPI increased 0.2%, while core prices – excluding food and energy – climbed 0.3%, leaving core inflation at 2.5%.
Much of the cooling came from shelter, where monthly gains slowed to 0.2% and the annual rate eased to about 3%, and from energy, with gas prices down roughly 3% on the month and more than 7% over the year.
Goods inflation continued to ease, helped by falling used‑car prices and softer vehicle costs, even as Trump‑era tariffs kept upward pressure on select categories such as furniture, appliances and some electronics.
By contrast, services remained the sticky part of the basket, with airfares jumping more than 6% in January and other travel‑related costs still running hotter than headline inflation.
A surprise US jobs beat dims hopes for a March Fed rate cut.
— Mortgage Professional America Magazine (@MPAMagazineUS) February 11, 2026
Explore how mixed labor signals are shaping Fed policy and mortgage market expectations for 2026.https://t.co/qBFSWjesbg#economy #FederalReserve #jobsreport #monetarypolicy
Markets still expect the Fed to cut rates twice in 2026. Some futures pricing now suggests roughly a 50% chance of a third cut by year end, even though the CME FedWatch tool still only has two fully priced in.
“The report adds to evidence that inflation is moving closer to the Federal Reserve’s target and keeps the door open to rate cuts later this year. Near term, however, policymakers are likely to stay cautious as they watch whether tariff-related cost pressures feed through more broadly into prices,” First American senior economist Sam Williamson said.
“For housing, January’s report is another incremental tailwind heading into the spring,” Williamson said. “As inflation cools and markets price a clearer path to easing, mortgage rates can drift modestly lower even before any policy move, providing a small affordability boost. That would add to recent improvements from slower home price growth and rising incomes, helping bring some rate-sensitive demand back as the market enters the peak buying season.”
Bankrate financial analyst Stephen Kates, CFP, highlighted the gradual nature of the disinflation trend. “With headline inflation drifting closer to 2% but core inflation still firm, the economy appears to be in a ‘slow glide’ toward price stability rather than a sharp drop,” Kates said.
“Paired with the surprisingly strong jobs report earlier this week, recent data suggests the Federal Reserve has room to be patient with future rate cuts. Consumers and investors should prepare for a steadier but still elevated cost and borrowing environment in 2026.”
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