US inflation expectations surge to 3.4%, and employment confidence drops to a 12-year low. Once this data is released, both the market and the Federal Reserve can't sit still.

The key points to watch next are clear: First, actual inflation data (CPI, PCE) to see if rising consumer expectations truly translate into price pressures; second, labor market reports to determine whether the unemployment rate is genuinely rising or just experiencing emotional fluctuations; third, wage growth, which directly links inflation and employment—if wages rise sharply, it can support consumption and push inflation higher.

One thing to pay attention to is that expectations themselves can drive reality. Once consumers worry about inflation, they may stockpile goods or demand higher wages; if they fear unemployment, they will tighten their wallets. These behaviors can, in turn, actually push up inflation or worsen economic slowdown. This self-fulfilling prophecy is taking shape.

The Fed’s desired soft landing path is narrowing. Originally, they aimed to balance inflation and employment, but now public expectations are worsening, making it much more difficult. The market generally expects that at the January 2026 meeting, the Fed is likely to keep interest rates unchanged, giving itself an observation period, waiting for clearer data, and leaving room for internal policy coordination.

The upcoming period is expected to be data-driven and volatile. Every economic report could become a turning point for market sentiment.