In the final quarter of 2024, the Federal Reserve signaled a cautious approach to monetary policy, with no immediate plans to cut interest rates. Fed Chair Jerome Powell emphasized patience, focusing on current economic indicators. Despite slowed economic growth, consumer spending demonstrated resilience, rising at a robust pace. Meanwhile, concerns linger over inflation trends, influencing the Fed's stance.
The US economy exhibited slower growth than anticipated in the last three months of 2024. Consumer spending, a key economic driver, rose by 4.2%, contributing to about two-thirds of all economic activity. However, gross private domestic investment fell by 5.6%, impacting overall growth. Trade also hindered growth, with both imports and exports declining by 0.8%. Government spending partially offset these declines, accelerating at a 3.2% rate.
Despite earlier aggressive rate cuts totaling a full percentage point over four months, the Fed remains wary of further reductions. Inflation, though reduced from its 40-year high in mid-2022, continues to affect households, especially those with lower incomes. Concerns persist among Fed officials that inflation may have stalled in its downward trajectory, prompting a cautious monetary policy approach.
The chain-weighted price index, which adjusts for consumer behavior in substituting cheaper goods, rose by 2.2% in the fourth quarter. This increment was faster than the 1.9% increase observed in the third quarter but slightly below expectations of a 2.3% rise. These figures reflect ongoing inflationary pressures that continue to influence economic policy decisions.
Powell's indication of no imminent rate cuts underscores the Fed's focus on stabilizing economic conditions. The resilience of the economy, alongside moderate inflation deceleration, supports this patient stance. Aggressive interest rate reductions appear unlikely this year as the Fed navigates complex economic dynamics.