Cooling Inflation Faces Test as Stubborn Costs Linger

Inflation slowed to start 2026, but sustaining momentum may be challenging for an economy still dealing with lingering tariff effects.

Published on Feb. 19, 2026

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Inflation slowed in January, offering a sign that price pressures could be stabilizing, but sustaining that momentum may be more challenging for an economy still dealing with stubborn costs and lingering tariff effects. While most economists expect tariff-induced price increases to be a one-time cost effect, they add to what has become a years-long struggle to fully eliminate the last effects of the post-pandemic price bump.

Why it matters

Inflation has been above the Federal Reserve's 2% target for nearly six years, putting strain on households. Sustaining the recent slowdown in inflation will be crucial for the Fed's efforts to bring price increases back under control without triggering a recession.

The details

January marked a productive start in the effort to bring down inflation, with prices rising 2.4% annually, the slowest increase since last May. However, companies are still facing decisions on whether to pass increased production costs, including from lingering tariff effects, onto consumers. Many were hesitant to hit customers with further price hikes and opted to instead build stockpiles or eat the costs. A recent study found 90% of the costs of President Trump's 2025 tariffs are being paid by U.S. companies and consumers.

  • Inflation slowed in January 2026.
  • President Trump's 2025 tariffs are still impacting prices.

The players

Federal Reserve

The central banking system of the United States that is tasked with setting monetary policy, including interest rates, to achieve its dual mandate of price stability and maximum employment.

Competitive Enterprise Institute

A non-profit public policy organization dedicated to advancing the principles of limited government, free enterprise, and individual liberty.

Austan Goolsbee

President of the Federal Reserve Bank of Chicago, who warned that services inflation poses a risk to further progress on cooling overall inflation.

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What they’re saying

“The trouble is that most of what America imports is inputs for other goods, which means that those tariffs can take time to work their way through supply chains. If a steel tariff goes up, it can take months or years before that will work its way into the price of a new washing machine or a new construction project.”

— Ryan Young, Senior Economist (Competitive Enterprise Institute)

“I think we've been basically stalled out around 3% with some positive signs, but also some warning signs.”

— Austan Goolsbee, President (Federal Reserve Bank of Chicago)

What’s next

The Federal Reserve will get another month of inflation and employment data before its March meeting, but is still expected to hold steady on adjusting the benchmark interest rate as it seeks to strike a balance between keeping the unemployment rate low while tamping down inflation.

The takeaway

Sustaining the recent slowdown in inflation will be crucial for the Federal Reserve's efforts to bring price increases back under control without triggering a recession, as the economy still faces headwinds from lingering tariff effects and sticky service sector inflation.