Weekly economic commentary: Fed speak points to extended pause amid rising uncertainty

Summary

United States: Consumer hibernation

• After a solid finish to 2024, the U.S. consumer rested up in January. Spending fell 0.2% despite solid income growth. The Fed's preferred measure of inflation showed price growth easing a bit further on trend, but confidence data out this week show consumers anxious about future inflation as talk of higher tariffs continues to dominate headlines.

• Next week: ISM Manufacturing & Services (Mon. & Wed.), Trade Balance (Thu.), Employment (Fri.)

International: Global GDP growth data galore

• This week saw the release of a variety of GDP growth data from global economies. Canada reported very solid fourth quarter GDP figures, in our view, affirming our forecast for a Bank of Canada rate pause in March. India's economy improved in the fourth quarter, Sweden's economy grew by more than expected and Switzerland's economy grew generally as expected.

• Next week: China PMIs (Sat.), European Central Bank Policy Rate (Thu.), Mexico CPI (Fri.)

Interest rate watch: Fed speak points to extended pause amid rising uncertainty

• The Federal Reserve communication channel was full this week. Generally, officials expressed the desire to hold rates steady on account of stalled inflation and increased uncertainty. All told, recent Fed speak supports our view that mounting upside inflation risks will keep the FOMC on hold over the next several meetings.

Credit market insights: Student loans showing signs of borrower struggle

• Student loan debt continued to rise through the fourth quarter, according to the New York Fed’s Q4-2024 Household Debt and Credit Report released earlier this month. Evidence is now emerging that delinquent student loan payments are starting to weigh on some consumers' credit reports.

Topic of the week: How will shrinking the federal workforce impact the labor market?

• Amid the flurry of actions taken by the Trump administration in its first month in office has been an effort to shrink the federal workforce. To what extent will these efforts weigh on payroll growth in the months ahead?

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