WASHINGTON, July 5 — The United States is entering the second half of 2026 with inflation stubbornly refusing to complete its journey back to the Federal Reserve’s target. The headline rate now stands at approximately 2.5 percent, a figure that represents considerable progress from the 40-year high of 9.1 percent recorded in June 2022, yet still sits above the central bank’s 2 percent objective. The technical reality of the disinflation story is more complex than the headline suggests.
Under the hood, core inflation—which strips out volatile food and energy prices—has proven stickier, hovering near 2.8 percent in 2026. The journey here has been brutal.
Inflation surged from 1.4 percent in January 2021, driven by pandemic-era fiscal stimulus, supply chain disruptions, and the energy price spike that followed Russia’s invasion of Ukraine in February 2022. The Federal Reserve responded with aggressive action, beginning interest rate hikes in March 2022. Through July 2023, the central bank implemented 11 rate increases, lifting the federal funds rate from near zero to a range of 5.25 percent to 5.50 percent.
Those higher borrowing costs have done their work. Reduced consumer demand, combined with improved supply chains and lower energy prices, has steadily pulled inflation down.
By 2024, the rate had fallen to around 3.4 percent. As ever, the detail that matters is the last mile. The Fed’s preferred 2 percent target remains elusive, and the stickiness of core inflation suggests the final phase of this disinflation may be the hardest.
Historical parallels to the Volcker era of the early 1980s—when inflation was tamed through similarly aggressive rate hikes—offer some reassurance, but also a cautionary note about patience. For now, the US economy is in a holding pattern. Inflation is no longer the crisis it was in mid-2022, but it has not yet been declared defeated.
The question hanging over the second half of 2026 is whether the current rate of 2.5 percent represents a plateau or a waypoint on the journey lower.
