US Economy Caps Off Strong 2024, Raises Questions for Fed

Q4 GDP Report

Released Thursday, the fourth quarter GDP report indicates a strong finish to 2024 for the US economy, despite a softer headline number (2.3% annualized growth).

Consumer Spending

Highlighting the report's strength, consumer spending grew at an unexpected 4.2%.

Trade and Investment

Volatility was evident in the trade component, with imports and exports falling 0.8% annualized. Slower inventory accumulation also contributed to a 0.9% reduction in GDP growth. Equipment investment declined 7.8%, mainly due to aerospace weakness (likely caused by a Boeing strike).

Inflation Concerns

Inflation remains a concern for policymakers, with the Fed's preferred gauge (PCE index) expected to show elevated levels on Friday. Persistent inflation has led to cautiousness among Fed officials, reducing the estimated number of rate cuts this year from four to two.

Fed's Wait-and-See Approach

Fed Chair Jay Powell has adopted a wait-and-see approach on interest rates, citing a strong economy and a need to evaluate the impact of new economic policies.

Potential Rate Cut

Economists remain divided on the possibility of a March rate cut. While some see it as feasible, others believe the Fed will hold steady and wait for further evidence of easing inflation.

Impact of Potential Tariffs

Potential tariffs on Mexico and Canada could increase core PCE inflation to 3%, reinforcing the Fed's cautious stance.