Two the Point — The Fed’s Balancing Act Continues

The U.S. economy continues to show resilience, with positive economic data supporting the soft-landing narrative as we head into 2025. While inflationary pressures remain a consideration, corporate profits and improving sentiment in key sectors are bolstering market optimism.

Key Insights:

• GDP Growth: Q4 GDP is tracking at 2.6%, up from 2.5% earlier this month, indicating steady economic momentum.
• Labor Market: Weekly jobless claims remain low at 217,000, reinforcing a strong employment backdrop.
• Manufacturing Strength: The November New York Fed manufacturing index surged, suggesting renewed activity in the sector.
• Housing Sentiment: Early signs of stabilization in housing markets and potential bottoming in commercial real estate prices provide optimism for 2025.
• Inflation Dynamics: October CPI rose +0.2% month-over-month (+2.6% year-over-year) and core CPI increased +0.3% month-over-month (+3.3% year-over-year). Import prices also ticked up, signaling lingering inflationary pressures.
• Corporate Earnings: Q3 earnings growth reached +8.8%, with 76% of companies beating estimates. Financials and utilities were standout sectors, while energy, materials, and industrials faced headwinds.
• Fed Policy: Chair Powell signaled caution, with no rush to cut rates further. Despite 75 basis points of rate cuts this fall, rising real yields have marginally tightened monetary conditions.