Weekly economic commentary: Riding the wave

Summary

United States: Riding the wave

• The Consumer Price Index ended the year at 2.9% year-over-year, which is a minor improvement from its 3.1% rate in January 2024 and points to stalled progress on the road back to the Federal Reserve's 2% inflation target. We now look for only two 25 bps rate cuts in the second half of 2025 and expect the FOMC to hold at a target range of 3.75%-4.00% through 2026.

• Next week: Leading Economic Index (Wed.), Existing Home Sales (Fri.)

International: China's economy finished 2024 on a solid note, but challenges remain

• China's economy finished 2024 on a sturdy note, with policy support measures helping to boost activity late last year. Q4 GDP firmed more than expected to 5.4% year-over-year, while December activity data also showed an acceleration in retail sales and industrial output. We still expect 2025 to be a challenging year, however, with higher U.S. tariffs weighing on China's export sector and domestic growth unlikely to be sustained unless the government announces large-scale fiscal stimulus.

• Next week: Canada CPI (Tue.), Bank of Japan Policy Rate (Fri.), Eurozone PMIs (Fri.)

Interest rate watch: FOMC likely to enter an extended pause in its recent easing cycle

• We share the widely-held expectation that the FOMC will maintain its current target range of 4.25%-4.50% for the federal funds rate at its upcoming meeting on January 29. We also think the FOMC will keep rates on hold until the second half of the year before easing again.

Topic of the week: Beige Book shows moderate expansion across all districts

• The latest Beige Book revealed a picture of continued economic growth, with all 12 of the regional banks reporting a “slight” to “moderate” expansion in activity over the period. Employment across the Districts was resilient, and prices broadly rose. Tariffs clouded the economic outlook for many contacts.

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