January 2026 Market Recap
1) Federal Open Market Committee: a pause, with continued emphasis on implementation
At the January 28 meeting, the Committee held the federal funds target range at 3.50% to 3.75% and reiterated that the extent and timing of further adjustments would depend on incoming data and the balance of risks.
The operational details mattered as much as the hold. In the accompanying implementation note, the Fed maintained the interest rate paid on reserve balances at 3.65% (effective January 29) and kept its standing repo and reverse repo settings in place to guide overnight rates. It also reiterated its intent to increase System Open Market Account holdings through purchases of Treasury bills and, if needed, other Treasuries with maturities of 3 years or less to maintain an ample level of reserves, while rolling over Treasury principal and reinvesting agency principal into Treasury bills.
Why this matters: by January, the Fed was communicating as much about “market plumbing” as about the policy rate. Keeping reserves ample and funding markets orderly is a prerequisite for policy to transmit smoothly through the financial system.
2) Bureau of Labor Statistics: inflation stayed contained, but the composition remained the story
The key inflation release in January was December 2025 CPI, published on January 13, 2026. Headline inflation was 2.7% year over year, and core CPI (excluding food and energy) was 2.6% year over year.
A few composition points that mattered for macro interpretation:
Shelter remained firm, with the shelter index up 3.2% year over year. This matters because shelter tends to be slow moving and can keep core inflation elevated even when goods disinflation is helping.
Energy was positive year over year at +2.3%, but the internals were mixed (for example, gasoline down over the year while electricity and natural gas were higher).
Several service categories showed meaningful monthly moves, reinforcing that the “last mile” back to 2% is often more about services behavior than goods prices.
The big picture: inflation looked controlled at the headline level, but underlying stickiness in shelter and select services kept the conversation focused on whether disinflation continues steadily or settles into a plateau.
3) Labor and growth: steady, but the signal was noisy and then the calendar broke again
The month began with the December 2025 Employment Situation report on January 9, 2026. Payrolls rose 50,000, and the unemployment rate held at 4.4%. The report also showed increases over the year in long term unemployment and in part time employment for economic reasons, both of which can matter when assessing the labor market’s underlying health.
Then, the late month policy situation added a new layer. A partial federal government shutdown began January 31, 2026, and the Labor Department announced that the January jobs report would not be released on schedule and that other key labor releases would also be delayed until funding is restored.
When the data calendar is disrupted, markets tend to lean more heavily on triangulation. That usually means greater sensitivity to private surveys, corporate commentary, and high frequency indicators until official releases normalize.
4) Rates: higher long yields reintroduced a “term premium” conversation
Treasury yields drifted higher over the month, particularly at the long end. The 10 year Treasury yield was 4.26% on January 30, 2026 and the January monthly average was about 4.21%.
This matters because, even with inflation moderating and the Fed on a gentler path than earlier in the cycle, longer yields can stay elevated if investors demand more compensation for duration risk, fiscal uncertainty, or growth resilience. In that environment, the macro debate often becomes less about the next 25 bps from the Fed and more about what drives the long end.
5) Manufacturing pulse: a notable uptick, but with mixed confidence
While not released until early February, one of the first major reads on January activity came from the Institute for Supply Management. ISM reported its January Manufacturing PMI at 52.6, the first reading back in expansion in about a year, driven by strength in new orders and production. The same commentary also noted that sentiment and uncertainty, including around trade policy, remained meaningful constraints, and the employment index was still below 50.
This is a good example of January’s broader theme: several indicators improved, but confidence in durability was not uniform.
6) The bigger context: even GDP timing became part of the macro story
Because of the fall 2025 shutdown and delayed source data, the official advance estimate for Q4 2025 GDP was still not released as of January 30, according to an economy statement associated with the U.S. Department of the Treasury.
That is not just a scheduling footnote. When benchmark growth data is delayed, the market’s macro narrative becomes more dependent on proxies, which can widen uncertainty bands and increase the odds of fast repricing when official data finally arrives.
What mattered most coming out of January
Whether inflation continues to drift lower, especially as shelter and services evolve.
Whether labor market “steady” becomes “softening,” particularly given signs like higher long term unemployment and higher involuntary part time work over the year.
How the shutdown related data disruptions affect confidence in near term trend.
Whether long rates stabilize or keep climbing, which can tighten financial conditions even without additional Fed hikes.
Whether the early manufacturing rebound proves durable or is primarily restocking behavior and front running uncertainty.
Disclosure
This commentary is provided for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. Views are as of the end of January 2026 and may change as new information becomes available.