Despite recent bouts of volatility stemming from tariff concerns, geopolitical tensions, earnings season and inflation, the market has generally remained resilient. One constant tailwind is that economic growth is, at least for now, solid enough.
A closer look at economic data points reveals some strong indicators. Manufacturing, for instance, is on the rise, as reflected by the most recent ISM manufacturing PMI and the Empire State Manufacturing Survey, both of which came in better than anticipated. The ISM services PMI for January was slightly lower than December’s figure but remains comfortably above 50. Retail sales, while experiencing their expected January dip, continue to reside within a “Goldilocks” range.
On the labor front, non-farm payrolls have risen solidly and initial jobless claims have only slightly increased in recent weeks. Unemployment has stabilized and wage growth has started to moderate. As Powell stated, our labor market is “solid.”
The Conference Board has projected real US GDP to come in at 2.3% in 2025, down from 2.8% in 2024. Globally, the non-profit expects real GDP to display 3% growth for 2025. “While the US economy is set to start 2025 on strong footing after a year of surprisingly robust growth, a combination of proposed policies will likely weigh on growth and leave inflation elevated as the year progresses, resulting in a more patient policy stance from the Fed,” The Conference Board wrote in a statement earlier this month.
What does this all mean? It indicates that the Federal Reserve may be on track to achieve its coveted soft landing, provided the data continues to reflect decent economic growth. Chicago Fed President Austan Goolsbee expressed optimism about a potential soft landing a few weeks ago.
However, minutes from the FOMC’s most recent meeting show staff have concerns about the direction of federal policy. They “continued to note elevated uncertainty regarding the scope, timing and potential economic effects of possible changes to trade, immigration, fiscal and regulatory policies,” the minutes read. Several participants also suggested it might be appropriate to pause or slow balance sheet runoff until Congress reaches a debt ceiling resolution.
The pause on interest rate cuts is expected to continue in the near term, barring significant changes to economic conditions. “If labor market conditions deteriorated, economic activity faltered or inflation returned to 2% more quickly than anticipated,” committee members would consider easing monetary policy.
The general consensus from the minutes aligns with what we’ve known since Powell’s last press conference: Officials are on hold until inflation trends significantly lower. The economic data situation, however, remains unchanged. Unless we see major declines in growth, a soft landing is not out of the question.
