Soft Narrative, Stiff Reality: January’s Long-Run Inflation Median Hits 3.3%, Still Above 2024

In the official release dated January 23, 2026, the University of Michigan reports that long-run inflation expectations “softened over the last two months of 2025” and “edged up in January 2026.” The headline leans on smoothing and “below-peak” framing. The data say something else: January’s median sits at 3.3%, explicitly “above 2024 readings as well as readings from 2020 and earlier,” and uncertainty widened.

Here’s what the release reveals—if you read past the headline:

• The median long-run expectation rose to 3.3% in January 2026—below the April 2025 spike at 4.4%, but above 2024 and the pre-pandemic period.

• The mean expectation ticked up and “remains above 2024 and pre-pandemic readings,” echoing the median’s re-acceleration.

• The interquartile range increased this month and is still elevated versus 2024 and pre-pandemic, signaling wider uncertainty.

• Tail risks reappeared: the 75th percentile and the share of “very high” expectations fell sharply in December 2025 then rose again in January.

• A three-month moving average is “comparable to 2023,” but the single-month January print stands above 2024, making the smoothing look like narrative cover.

The Framing Problem: “Softened” vs Elevated

January’s uptick is neatly described as having “edged up.” That’s true—and incomplete. The same document concedes that both level and uncertainty are higher than 2024 and pre-pandemic. Put differently, the baseline has shifted up from where the Fed and markets felt comfortable in late 2023 and early 2024.

• January’s 3.3% median is miles below the 4.4% April 2025 scare, but the more relevant comparison is to 2024, when readings and consumer sentiment were notably better.

• The emphasis on being “well below peaks” downplays the regime shift: we’re not at the highs, but we’re not low either.

Why It Matters

Inflation expectations at this horizon anchor wage setting, price plans, and—crucially—the Fed’s risk calculus. Elevated levels and widening dispersion make it harder to justify rapid policy easing, even if near-term inflation cools. It’s the difference between “mission accomplished” and “stay on watch.”

Dispersion Doesn’t Lie: Uncertainty Widened

The interquartile range increased in January and remains elevated relative to 2024 and pre-pandemic. That’s the tell. Even while the mean and median sit off their 2025 highs, the distribution is fatter in the upper tail.

• The 75th percentile and the share of respondents with very high expectations rebounded in January after a sharp December drop.

• That swing telegraphs renewed upside risk—exactly what a steady-improvement narrative would prefer to mute.

This is classic late-cycle psychology: an aggregate level that looks “better than the worst,” with a cross-section that says “not out of the woods.”

Smoothing vs. Reality: The 3-Month Moving Average Detour

The release stresses that the three-month moving average (3MMA) is “comparable to levels seen in 2023.” True—and strategically chosen. The point-in-time reading for January is above 2024. The choice to foreground a smoothed metric is doing rhetorical work.

• 2023 was the repair phase: sentiment in the 61–70 range, expectations improving from post-2022 stress.

• 2024 was meaningfully stronger: sentiment in the 74–79 range early in the year, and long-run expectations lower than today.

In market terms, the 3MMA is yesterday’s weather. The January print is today’s forecast.

Historical Drift: From Softening to Re-Elevation

The storyline has moved. In October 2024, the narrative was “worsened through mid-2022 and softened thereafter.” 2025 scrambled that: the median surged to 4.4% in April 2025 before trending down. Now, in January 2026, we’re at 3.3%—comfortably off the spike, but still above 2024 readings.

The consumer sentiment backdrop underscores the shift:

• The April 2025 expectation spike coincides with a sentiment trough (52.2). No surprise: fear magnifies inflation risk perceptions.

• The January 2026 3MMA being “comparable to 2023” makes sense: 2023 sentiment sat roughly 61–70, not the stronger 74–79 of early 2024. Translation: the expectations backdrop has not returned to the 2024 comfort zone.

What’s Missing

The release focuses narrowly on long-run expectations via web interviews—no January 2026 overall sentiment index, no cohort breakdowns (income, region, politics), no link to spending behavior. Aggregates hide stress pockets; that omission keeps investors guessing where price and wage pressures could resurface first.

The Investor Take: When Tails Wiggle, Risk Premia Don’t Sleep

Markets trade distributions, not narratives. The uptick in the median and mean, the wider interquartile range, and the rebound in the 75th percentile/tail share all point to stickier anchors than the headline tone implies.

Here’s how to translate that into positioning:

• Rates and the Fed: A January re-acceleration in long-run expectations argues against aggressive near-term cuts. Expect a slower, data-dependent easing path—think fewer cuts priced for 2026 unless core disinflation accelerates.

• Breakevens and TIPS: With long-run expectations above 2024, modest steepening of breakevens is plausible. Maintain a relative overweight in 5–10Y TIPS versus nominals; consider adding on dips if tail indicators stay noisy.

• Curve stance: Elevated long-run anchors with restrained near-term growth argue for a barbell—short duration for flexibility, plus intermediate real-duration via TIPS.

• Equities—quality over concept: Favor companies with demonstrable pricing power and resilient margins (healthcare services, defense-adjacent industrials, mission-critical software). Be selective in long-duration growth where valuation hinges on lower discount rates.

• Inflation hedges as insurance, not bet-the-house: Cheap optionality via inflation caps/swaptions or commodity overlays (broad baskets rather than single-bet energy) still makes sense while dispersion is climbing.

• Credit: Elevated uncertainty nudges risk premia higher at the margin. Up-in-quality within IG; in HY, prefer shorter duration and cash-flow visibility over cyclicality.

What to Watch Next

• Next two UMich releases: Do the 75th percentile and “very high” share keep rising? The dispersion trend will dictate whether this is noise or a regime plateau.

• CPI/PCE against expectations: If realized inflation undershoots while expectations stay sticky, the Fed will lean on communication; if both firm, rate-cut bets get pushed out.

• Labor data and wage trackers: Sticky expectations plus robust wage growth is the combination that extends the inflation fight.

• Market-derived expectations: Monitor 5Y5Y forwards and breakeven curves for confirmation of the survey’s re-elevation.

Closing Thought: Don’t Trade the Smoothing—Trade the Dispersion

The January 23, 2026 release says long-run inflation expectations “edged up.” The distribution says risk pushed back out. With the median at 3.3%, the mean above 2024, and uncertainty widening, the soft phrasing understates a still-elevated baseline. For investors, the playbook is straightforward: respect the tails, rent protection, and stick with assets that earn their margins when the narrative gets comfy but the data won’t cooperate.