Summary
United States: Economic Momentum Holding, for Now
- The economy ended 2024 on a solid note with a 2.3% Q4 increase in real GDP. Volatile inventory swings lowered the headline, but real final sales to domestic private purchasers rose by a robust 3.2%. Fervent consumer spending continues to drive economic activity, while inflation is receding at a snail’s pace. That said, trends in the Employment Cost Index suggest that the labor market is no longer a meaningful source of price pressures.
- Next week: ISM Manufacturing & Services (Mon. & Wed.), Employment (Fri.)
International: Foreign Central Bank Bonanza!
- It was a busy week for foreign central banks, with several institutions offering their first monetary policy assessments of 2025. The European Central Bank lowered its Deposit Rate by 25 bps to 2.75% and delivered commentary that was, in our view, consistent with further easing at upcoming meetings. The Bank of Canada and Sweden’s Riksbank also lowered their policy rates by 25 bps, and we have updated our forecast to look for an earlier start to Reserve Bank of Australia policy easing. In the emerging economies, Brazil’s central bank delivered a hawkish-leaning 100 bps rate hike, and China’s PMI data disappointed.
- Next week: Eurozone CPI (Mon.), Bank of England Policy Rate (Thu.), Banxico Policy Rate (Thu.)
Interest Rate Watch: In Little Hurry to Cut Further
- As universally expected, the Federal Open Market Committee (FOMC) left its target range for the federal funds rate unchanged at 4.25%-4.50% on Wednesday. With inflation remaining stubbornly above target and real economic activity holding up reasonably well, we see little reason for the FOMC to cut rates in the near term.
Topic of the Week: Nobody Puts ASI in the Corner…Except Tariffs
- The Animal Spirits Index (ASI) finished out 2024 on a soft note, hitting its lowest level since November 2023. The index dropped 0.44 points in December to 0.31—the largest monthly decrease in over a year. Though the ASI remained in positive territory for all of 2024, it has softened considerably from a five-year high of 0.96 in March.
 left its target range for the federal funds rate unchanged at 4.25%-4.50% on Wednesday. With inflation remaining stubbornly above target and real economic activity holding up reasonably well, we see little reason for the FOMC to cut rates in the near term.){kind=link}