After all was said and done, the reaction to the FOMC’s rate decision to leave the fed funds rate unchanged and the Fed Chair’s comments was rather… meh. However, in between the press release and comments, there was a lot of negative market reaction. Stocks fell a couple of hundred points and Treasury yields rose about three basis points. The markets became alarmed over the omission of a few key words regarding inflation – “has made progress toward the Committee's 2% objective but” - in the official statement. Yet, the Fed left in that inflation “remains somewhat elevated.” In the usual way of dissecting and over-thinking each word out of the committee’s mouths, the markets took the change as the Fed’s way to indicate it was taking all rate cuts off the table.

It only took a few comments from Federal Reserve Chair Jerome Powell to calm the markets. When asked about the key change in the press release, Powell smiled and said it was just an attempt to clean up the language and shorten the sentence. There was no intent to send any message other than the Fed remains committed to bringing inflation down to the 2% target. Powell stressed to reporters that the committee’s expectations are for further progress on inflation. The Fed believes the current monetary policy is “well calibrated” to meet the 2% inflation goal and sustain the economy. Committee members are not in a hurry to ease and will let the data guide them in what needs to be done. By the end of the day, the fed funds futures markets had a 50% chance of a rate cut in June with a second cut possible by year end.

Powell quickly and skillfully dodged all questions related to immigration, tariffs and President Trump’s recent comments about demanding the Fed cut rates. Powell cut off reporters’ questions on these topics, saying they were inappropriate or not the Fed’s business. 

GDP – The U.S. economy ended 2024 on a strong note, rising 2.3% in the fourth quarter. While lower than the 3.1% pace in the previous quarter, the strength is remarkable, given the headwinds of higher interest rates, strikes and natural disasters the country faced in the last three months of the year. Consumer spending fueled the growth, surging 4.2%. This was the first time since late 2021 that spending exceeded 3% in consecutive quarters. The acceleration was led by a pickup in motor vehicle sales. On the flipside, business investment declined 2.2%, the first drop in more than three years. The decline is being blamed on hesitation before the presidential election and issues with the Boeing strike. The price index, another piece of the inflation mix, rose 2.2% in the fourth quarter, higher than 1.9% in the third quarter. The U.S. economy grew 2.8% in 2024 after expanding 2.9% and 2.5% in the prior two years, respectively.