Dollar Dominance: Sticky CPI and Retail Strength Eclipse Fed Independence Fears

The US Dollar continues to assert its dominance, supported by a “higher-for-longer” narrative that was reinforced by this week's macroeconomic data. However, a developing rift between the White House and the Federal Reserve is generating an undercurrent of institutional risk.

Macro Data Kills March Cut Hopes

US economic resilience was on full display this week. DecemberCPI remained sticky, with the headline holding at 2.7%YoY and core inflation at 2.6%. While technical factors (such as “carry-forward imputation”) did not cause the spike some feared, the lack of downward progress is frustrating the disinflation narrative.

Further bolstering the hawkish case, November Retail Sales beat expectations, rising 0.6%MoM (vs 0.4% expected). This data indicates that despite high rates, the US consumer remains active, reducing the urgency for the Federal Reserve to ease policy. Market pricing has aggressively adjusted, now pricing out a January cut entirely and pushing the probability of a first pivot to June 2026.

• December Headline CPI: holding at 2.7% YoY
• Core Inflation: 2.6%
• November Retail Sales: 0.6% MoM
• Fed Pivot Projection: Delayed to June 2026

The Powell Investigation: A Structural Risk?

While data supports the Greenback, political headlines offer cause for concern. Reports confirm that the US Department of Justice has issued subpoenas regarding Federal Reserve Chair Jerome Powells involvement in a headquarters renovation project.

Analysts view this as a potential proxy war over monetary policy independence. While immediate market reaction has been muted, the move threatens to politicize the central bank. If Powell is forced out or weakened, it could lead to a “Shadow Chair” scenario or a more dovish successor (like Kevin Hassett), potentially undermining the Dollar's long-term credibility. For now, however, the Dollar remains king, driven by yield differentials and US exceptionalism.