As markets reopen for the first trading day of 2026, investors are already marking their calendars for two critical economic reports that will arrive within the next two weeks—data releases that could validate or challenge Wall Street's optimistic forecasts for the year ahead.

The December employment situation report arrives Friday, January 9, followed by December inflation data on Tuesday, January 13. Together, these releases will provide the first substantive evidence about whether the U.S. economy is threading the needle toward a "soft landing" or whether recession risks or persistent inflation might derail the positive scenario markets have priced in.

January 9: The December Jobs Report

The Bureau of Labor Statistics will release the Employment Situation for December 2025 at 8:30 a.m. Eastern Time on Friday, January 9. This report has taken on heightened significance given recent signs of labor market softening and questions about whether unemployment is truly under control.

What Economists Are Watching

Several key metrics will command attention:

Nonfarm Payrolls: The headline number showing how many jobs the economy added or lost in December. Consensus forecasts cluster around 150,000-175,000 new jobs, a solid but unremarkable pace that would continue the gradual cooling trend from the overheated labor market of 2022-2023.

Unemployment Rate: Currently at 4.6%, the jobless rate has crept higher from the 3.4% lows reached in early 2023. Economists are watching to see if this upward trend continues or stabilizes. Any move above 4.8% would likely trigger fresh recession concerns, while a decline back toward 4.5% would ease worries.

Labor Force Participation: Whether workers are entering or exiting the labor force affects the interpretation of the unemployment rate. Rising participation coupled with stable unemployment would be a positive signal; falling participation could suggest discouraged workers giving up job searches.

Average Hourly Earnings: Wage growth remains crucial for inflation dynamics. The Fed wants to see wage gains moderate to around 3-3.5% annually—fast enough to support consumer spending but not so rapid as to fuel persistent inflation. November's year-over-year wage growth came in at 4.0%, still above the Fed's comfort zone.

The Labor Market Paradox

Recent months have presented a confusing picture. While the unemployment rate has risen modestly, the economy has continued adding jobs at a steady pace. This apparent contradiction stems from several factors:

  • Population growth: The labor force is expanding, requiring ongoing job creation just to keep unemployment stable
  • Immigration dynamics: Changes in immigration patterns affect both labor supply and demand
  • Industry variation: Some sectors (technology, finance) have contracted while others (healthcare, government) have expanded
  • Hours worked: Companies have reduced hours for existing workers rather than conducting mass layoffs

The Conference Board's research suggests rising unemployment augurs more Federal Reserve rate cuts in 2026, but only if the labor market softening accelerates beyond current levels.

January 13: The December CPI Report

Four days after the jobs data, the Bureau of Labor Statistics will release the Consumer Price Index for December at 8:30 a.m. Eastern Time on Tuesday, January 13. This inflation snapshot will be scrutinized for evidence that price pressures continue to ease toward the Fed's 2% target—or whether progress has stalled.

The Inflation Picture Heading Into 2026

Inflation has cooled dramatically from the 9% peaks reached in mid-2022, but the final stretch toward 2% has proven stubborn. The Federal Reserve's December forecast projected inflation at 2.4% for 2026—improvement, yes, but still above target.

"We've made significant progress on inflation, but the last mile is often the hardest. Inflation has a tendency to become sticky as it approaches the target,"

noted economists tracking the disinflation process

Key Components to Watch

Core CPI (Excluding Food and Energy): The Fed's preferred inflation measure strips out volatile food and energy prices to reveal underlying inflation trends. Core CPI has been running around 3.3% year-over-year, well above the 2% target. Any reading above 3.5% would likely dash hopes for near-term rate cuts; a reading below 3.0% could accelerate easing expectations.

Shelter Costs: Housing-related costs represent about one-third of the CPI basket and have been the most persistent source of inflation. Economists expect shelter inflation to continue moderating in 2026 as lease renewals reflect softer rental market conditions, but the lagged nature of this data means progress will be gradual.

Services Inflation: Non-housing services inflation—things like haircuts, restaurant meals, and car repairs—has remained elevated due to wage growth in service industries. This category is particularly important because it's closely tied to domestic wage dynamics rather than global commodity prices.

Goods Prices: Goods inflation has turned negative in recent months as supply chain problems fully resolved and demand for physical items normalized after pandemic-era surges. Continued goods deflation could offset persistent services inflation.

The Federal Reserve's Dilemma

The upcoming data releases will directly influence Federal Reserve policy deliberations at the January 28-29 FOMC meeting. Currently, markets assign an 83% probability that the Fed will hold rates steady at 3.5%-3.75%, but this could shift based on the jobs and inflation numbers.

Possible Scenarios

Goldilocks (Soft Landing): Moderate job gains (150k-200k), stable unemployment around 4.6%, and core inflation continuing to decline toward 3% would support the "soft landing" narrative. In this scenario, the Fed could proceed with gradual rate cuts, and markets would likely rally.

Too Hot (Inflation Persistence): Strong job gains (250k+), wage growth remaining above 4%, and core inflation stalling around 3.5% would suggest the economy hasn't cooled enough. This could lead the Fed to hold rates higher for longer, potentially disappointing markets that have priced in cuts.

Too Cold (Recession Risk): Weak job gains (below 100k), rising unemployment above 4.8%, but inflation remaining sticky would present the Fed with a difficult choice—cut rates to support the weakening economy or hold firm to finish the inflation fight. This scenario typically causes market volatility.

Best Case (Rapid Disinflation): Moderate employment growth combined with inflation dropping sharply toward 2% would give the Fed maximum flexibility to cut rates while maintaining credibility. This is the scenario underpinning Wall Street's most bullish forecasts.

Market Positioning and Expectations

Options market data and futures positioning suggest investors are relatively complacent heading into these releases, with implied volatility measures at moderate levels. This could mean either:

  • Markets are confident in the soft landing scenario and don't expect surprises
  • Markets are under-pricing the potential for data that significantly differs from expectations

Historical patterns show that the first major economic reports of a new year often trigger larger-than-usual market reactions as traders update their base-case assumptions for the months ahead.

Other January Data to Watch

Beyond the marquee jobs and inflation reports, several other economic releases will fill out the picture:

  • January 7 (8:15 a.m.): ADP National Employment Report—private sector job creation estimate
  • January 15 (8:30 a.m.): Advance Retail Sales—holiday shopping season results
  • Mid-January: Bank earnings season begins—JPMorgan, Bank of America, Citigroup report Q4 results
  • Late January: Fourth-quarter GDP advance estimate

The Bigger Picture: 2026 Economic Outlook

The January data releases will provide the first hard evidence to test several competing narratives about 2026:

The Bull Case argues that inflation will continue falling toward target while the economy maintains moderate growth, allowing the Fed to cut rates and supporting both economic activity and asset prices.

The Bear Case warns that inflation will prove stickier than expected, forcing the Fed to keep rates restrictive longer, eventually tipping the economy into recession—particularly as the lagged effects of previous rate hikes continue working through the system.

The Stagflation Scenario fears that the economy could weaken while inflation remains elevated, presenting policymakers with no good options—a nightmare echoing the 1970s.

What Investors Should Do

Rather than trying to predict the exact numbers, investors might consider:

  • Prepare for volatility: Major data releases often trigger intraday swings that can create opportunities
  • Focus on trends, not single data points: One month's numbers can be noisy; the direction over multiple months matters more
  • Avoid overreacting: Markets often overreact to data releases in the short term before settling into more rational pricing
  • Maintain diversification: Different economic scenarios favor different asset classes
  • Remember your time horizon: Short-term data volatility matters less for long-term investors

As we enter 2026, the economic data calendar will provide a reality check for market expectations. The December jobs report and inflation data represent the opening salvos in what promises to be a year of close attention to economic indicators.

Whether Wall Street's bullish forecasts prove prescient or overly optimistic may hinge on whether these early 2026 data releases support the soft landing narrative—or suggest the economic path ahead is rockier than markets currently anticipate.