As of Friday, January 31, 2025, the U.S. economy is influenced by several key developments across various sectors.
1. Inflation and Interest Rates
The Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation gauge, increased by 0.3% in December, marking the largest monthly gain since April. On a year-over-year basis, the PCE inflation rate rose to 2.6%, up from 2.4% in November. Core PCE, which excludes food and energy prices, climbed by 0.2%, maintaining an annual rate of 2.8%. These figures suggest that inflation remains above the Fed’s 2% target, potentially influencing future monetary policy decisions.
2. Federal Reserve Policy
Federal Reserve Governor Michelle Bowman emphasized that while further interest rate cuts are anticipated this year due to declining inflation, a cautious and gradual approach is essential. She highlighted potential risks from rising wages, strong financial markets, and geopolitical tensions that could delay rate adjustments. The Fed recently held the benchmark interest rate steady at 4.25%-4.5%, awaiting more comprehensive economic data before making further decisions.
3. Labor Market and Unemployment
The labor market remains robust, with consumer spending rising by 0.7% in December, supported by wage gains and higher asset values. However, the personal savings rate has declined to 3.8%, the lowest in two years, indicating that consumers are dipping into savings to maintain spending levels. Upcoming reports, including the Job Openings and Labor Turnover Survey (JOLTS) and the monthly employment report, will provide further insights into labor market trends.
4. GDP Growth and Economic Expansion
The U.S. economy grew at a 2.3% seasonally adjusted annual rate in the fourth quarter of 2024, driven primarily by strong consumer spending—the most significant gain in goods consumption in nearly two years. Other contributions came from residential investment, intellectual property investment, government spending, and lower imports. However, new orders for durable goods fell for the second consecutive month in December, indicating potential headwinds for future growth.
5. Stock Market and Financial Markets
Stocks ascended yesterday as investors parsed the latest round of Big Tech earnings, finding them generally palatable. Thursday’s biggest winner was IBM, which had its best day since NSYNC was topping the charts after it posted strong AI-boosted Q4 revenues. U.S. stock futures rose as investors reacted to strong tech earnings and prepared for upcoming economic data releases. The SPDR S&P 500 ETF Trust (SPY) is currently trading at $608.47, reflecting a slight increase. The Invesco QQQ Trust (QQQ), tracking the Nasdaq-100 Index, stands at $529.37, up by 1.21%. The SPDR Dow Jones Industrial Average ETF (DIA) is priced at $448.60, a marginal decline of 0.05%. These movements indicate cautious optimism among investors.
6. Housing Market and Mortgage Rates
New home sales increased by 3.6% in December, with notable gains in the Northeast and West.
