February 1, 2025

U.S. inflation increased by the most in eight months in December amid robust consumer spending on goods and services, suggesting the Federal Reserve would be in no hurry to resume cutting interest rates soon. The inflation outlook has been clouded by uncertainty about the economic impact of the new administration’s fiscal, trade, and immigration policies.

The central bank has forecast only two rate cuts this year, down from the four it had projected in September amid caution over the new Trump administration's plans for tax cuts, broad tariffs on imports and an immigration crackdown. Core inflation rose at a 2.2% annualized rate in the three months to December.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 0.7% in December after an upwardly revised 0.6% rise in November. Spending was previously reported to have gained 0.4% in November.

Goods outlays increased 0.9%, driven by automobiles, food, as well as gasoline and other energy products. Spending on services rose 0.6% amid big gains in housing and utilities, transportation, healthcare, and other services.

Economists expect pre-emptive buying continued in January. When adjusted for inflation, consumer spending rose 0.4%, setting the economy on a higher growth trajectory heading into the first quarter. Personal income increased 0.4% after gaining 0.3% in November. With spending outpacing income, the saving rate fell to a two-year low of 3.8% from 4.1% in November.

For the month, the major indices are all positive with the Dow, S&P 500, and NASDAQ at 4.7%, 2.7%, and 1.64%, respectively. The yield on the 10-year Treasury note is currently 4.52%, while the yield on the two-year Treasury is at 4.18%.

Remember to start gathering your tax information which should be arriving in the next few weeks. 
 

*Disclaimer: This report is a publication of Marchand Faries Financial Management, Inc. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed.  All expressions of opinion reflect the judgement of the author as of the date of publication and are subject to change.