The Bureau of Economic Analysis’ second estimate of fourth quarter US gross domestic product (GDP) remained unchanged from the advance estimates, showing an annualised growth of 2.3% in Q4 2024.
However, inflation remained stickier than expected, complicating the Federal Reserve’s outlook on monetary policy.
Consumer spending, the backbone of the economy, advanced at a robust 4.2% pace, helping sustain economic momentum despite the pressures of high interest rates and rising living costs.
Meanwhile, the GDP price index was revised higher to 2.4% from an earlier estimate of 2.2%, reflecting persistent inflationary pressures, particularly in services.
The Fed’s preferred inflation gauge — the Personal Consumption Expenditures (PCE) Price Index excluding food and energy — climbed 2.7%, up from the previously reported 2.5%, reinforcing concerns that price pressures may remain elevated for longer than anticipated.
Labour market softens amid policy uncertainty
The latest jobless claims data added to concerns over economic cooling. Initial applications for unemployment benefits rose sharply to 2.42 lakh for the week ending February 22, up from 2.2 lakh in the previous week. This marks the highest level seen in 2024, raising questions about labour market resilience.
Beyond consumer demand, government spending was revised higher, but business investment disappointed. Equipment spending fell at a 9% annualised rate, while intellectual property investment remained largely unchanged. However, capital goods shipments and orders rebounded in January, aided by Boeing’s recovery from a machinists’ strike, which could provide some support for Q1 growth, Bloomberg highlighted.
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Fed holds cautious stance amid inflation risks
With inflation showing signs of resurgence, Federal Reserve officials are expected to remain cautious about cutting interest rates. Recent data on consumer and producer prices, along with labour costs, indicate stubborn price pressures.
After lowering rates by a full percentage point last year, policymakers now seek further evidence of progress on inflation before making additional cuts.
Adding to economic uncertainty is President Donald Trump’s evolving policy agenda. While proposed tax cuts could boost growth, potential tariffs and mass deportations may stoke inflation, complicating the Fed’s decision-making process in the months ahead, Bloomberg pointed out.
Recent surveys indicating a rise in consumer inflation expectations suggest that the US Federal Reserve must remain vigilant in containing price pressures, Kansas City Fed President Jeff Schmid said on Thursday (February 27), according to a Reuters report.
“The last two months have seen a sharp upward movement in some measures of expected inflation,” Schmid noted in prepared remarks for a federal agriculture conference. “Certainly, survey measures of inflation expectations are imperfect and subject to noise, but with inflation just recently at a 40-year high, now is not the time to let down our guard,” he added, underscoring a growing concern for policymakers.
Beyond inflation expectations — which the Fed closely watches for signs of a shift in public sentiment that could push prices higher — Schmid noted that actual inflation data has remained stubbornly above the central bank’s 2% target, Reuters reported.
At the same time, he pointed to growing uncertainty about the economy’s trajectory, which could dampen growth. This, he said, presents a challenging trade-off for policymakers: Either easing monetary policy to support the economy or staying firm to bring inflation back to target while keeping expectations in check, as per the report.
