Week in Review: December 23, 2024

December 23, 2024

Recap & Commentary

Markets ended the week lower, reacting poorly to revised Federal Reserve guidance following the bank’s December FOMC meeting as well as hawkish comments from Fed Chair Jay Powell. That was evident in the S&P 500’s 2.9% decline on Wednesday, its largest daily decline since early August. The same factors that weighed on equity markets helped push interest rates higher with the 10-Year Treasury yield reaching its highest level since late May reflecting expectations of fewer rate cuts in 2025. Separately, Congress provided some year end drama by narrowly avoiding a government shutdown. ​

As expected, the Fed lowered interest rates by 0.25% to a range of 4.25-4.50%. Nonetheless, investors were disappointed by Powell’s post-meeting comments. Addressing the recent stall in inflation, Powell said, “We’ve had a year-end projection for inflation and its kind of fallen apart…” That was evident in the Fed’s updated projections increasing 2024 and 2025 year-end estimates of inflation by 0.2% and 0.3%, respectively to 2.8% and 2.5%. In addition, the Fed revised upwards its year end 2025 forecast for the Fed funds rate from 3.4% to 3.9% and its 2026 forecast from 2.9% to 3.4%. “As we think about further cuts, we’re going to be looking for progress on inflation” Powell said. As to the timing of rate cuts in 2025, Powell noted that based on current conditions, i.e. slowing progress on inflation and employment data that is not currently pointing to a steep deterioration in labor market conditions, Powell said the Fed can be more “cautious” as it considers further adjustments to monetary policy.

Economic Commentary

A very busy week for economic data was highlighted by core PCE inflation (the Fed’s preferred measure), retail sales, and revised 3Q GDP growth.​

Core PCE registered a 0.1% monthly gain in November, its smallest increase since May. Compared to a year ago, core PCE advanced 2.8%, inline with October’s pace, but 0.1% slower than expected. The news helped calm some of the market’s concerns about Powell’s post-meeting comments. ​

Retail sales jumped 0.7% in November, exceeding the 0.6% forecast. Core sales, excluding auto and gas sales rose just 0.2%, below the expected 0.4% gain.​

Third quarter GDP was revised from 2.8% to 3.1%, led by upward adjustments to exports and consumer spending. Currently, the Atlanta Fed’s closely watched GDPNow forecasting model predicts 3.1% growth for the fourth quarter, which would mark the third consecutive quarter of 3.0%+ growth, the longest such streak since 2021 as the economy recovered from Covid. Excluding the pandemic, it would be the longest such streak since 2017/18.​

Housing data remained mixed with existing home sales beating expectations, while housing starts missed. Existing home sales rose 4.8% to an eight-month high even as higher mortgage rates continue to weight on activity.​

Weekly jobless claims fell 22K to 220K a week after jumping to an eight-week high, suggesting the prior week’s data was likely more of an anomaly than the start of a persistent trend.

Of Note

Congress avoided a government shutdown by passing a short-term budget deal, funding the government through March 14. The bill did not address the debt ceiling which is currently suspended but will be reinstated on January 1, 2025.​

Market Indices   (As of 12/20/2024)

• Consumer Confidence​
• New Home Sales​
• Durable Goods Orders​
• Initial Jobless Claims