This week was packed with economic news, but none of it brought unexpected shocks. The Federal Reserve’s latest meeting played out as anticipated, inflation data aligned with forecasts, and mortgage rates ended the week slightly lower.

Inflation and the Fed’s Perspective

The Federal Reserve closely tracks inflation, with the PCE price index serving as its preferred gauge. In December, Core PCE (which excludes food and energy costs) rose 0.2% from November, exactly as expected. On an annual basis, Core PCE was 2.8% higher than a year ago, matching last month’s rate.

While inflation has dropped significantly from its peak, hitting the Fed’s long-term target of 2.0% remains a challenge. The last time inflation reached this level was in February 2021, and recent data suggests further progress may be slow.

GDP Growth Slows Slightly

Gross Domestic Product (GDP), the broadest measure of economic activity, showed U.S. growth at an annualized rate of 2.3% in Q4 2024. This was lower than the expected 2.6% and marked a decline from 3.1% growth in the third quarter.

Key takeaways from the GDP report:

  • Consumer spending and government spending helped drive growth.
  • A decline in inventories reduced overall GDP figures significantly.
  • Business investment dropped for the first time in over three years.

Federal Reserve Holds Inflation Rates Steady

As widely expected, the Fed left its benchmark interest rate unchanged on Wednesday. The official statement following the meeting closely resembled previous ones, with only a slight adjustment: the removal of a reference to inflation “making progress” toward the 2.0% target.

Initially, this change raised some concerns, but Fed Chair Jerome Powell quickly clarified in his press conference that the adjustment was not meant to signal a shift in policy. He also noted that while economic uncertainty has increased due to potential policy changes under the new administration, the Fed will continue to base decisions on economic data.

What’s Next?

Investors will now look for further signals from the Fed on its next moves regarding interest rates. Key upcoming economic reports include:

  • ISM Manufacturing Index (Monday) – Measures the health of the manufacturing sector.
  • JOLTS Job Openings Report (Tuesday) – Tracks labor market strength.
  • Employment Report (Friday) – Provides critical data on job creation, wage growth, and unemployment.

These reports will offer further insight into whether the Fed will hold steady, raise, or cut rates in the months ahead. For now, mortgage markets remain stable, but future rate decisions will depend on economic trends.

2 min read / Published On: January 31st, 2025 /

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