Business Inflation Expectations Fall to Cycle Low, Easing Pressure on Fed — Evening Brief – 12.17.25 

U.S. businesses ended 2025 with their most subdued inflation outlook of the year, according to new data from the Federal Reserve Bank of Atlanta’s December Business Inflation Expectations Survey. Firms’ year-ahead inflation expectations held steady at 2.2%, matching November’s reading and marking the lowest level recorded in 2025—an encouraging signal for policymakers seeking confirmation that inflation continues to decelerate. 

The December report showed a notable improvement in business conditions. A growing share of firms reported sales levels and profit margins “above normal,” suggesting the economic backdrop is firming even as price pressures cool. Many respondents pointed to resilient customer demand, improved inventory management, and easing supply constraints as key drivers of better-than-expected performance in Q4. 

On the cost side, companies reported unit cost growth of 2.4% year-over-year, modestly higher than in prior months but still well below post-pandemic peaks. Wage pressures remain elevated in certain sectors—particularly services—but the survey indicates that firms are no longer experiencing broad-based cost surges. Several respondents noted stabilizing input prices, improved shipping and logistics costs, and normalization in supplier lead times. 

Crucially for the Federal Reserve, long-run (five- to ten-year) unit cost expectations fell to 2.7%, down from September’s reading. That decline suggests firms see inflation risks continuing to drift lower over time, reinforcing the Fed’s view that inflation expectations remain well anchored despite lingering price stickiness in housing and services. 

Taken together, the survey paints a picture of an economy transitioning toward moderate, sustainable inflation with improving profitability—a combination that may give the Fed more flexibility as it evaluates the timing and pace of interest-rate cuts in 2026.