In testimony about the Federal Reserve’s Semiannual Monetary Policy Report to Congress, chairman Jerome Powell has effectively summarized the more complex report in a few words: there is no immediate need to cut or hike interest rates.
The gross domestic product rose 2.5% in 2024. Consumer spending remained strong and corporate investment looked “solid” for the year, but the latter declined in the fourth quarter. The housing sector “stabilized” after mid-year weakness, according to Powell.
That sets the floor of a stable and growing economy. Next, is the labor market. Over the last four months, the average monthly number of new jobs has been 189,000. That does include the lower-than-expected January number, but also higher-than-expected numbers for November and December. The unemployment rate was steady much of last year and dropped to 4% in January, which is low.
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Nominal wage growth eased over the last year and the jobs-to-workers ratio has dropped for a better fit of company employment needs with people who need jobs. Many indicators show a labor market that is in balance and not a “source of significant inflationary pressures.”
As for economic activity, there are two simultaneous considerations. One is careful treading of the economic waters. Sluggish performance can make individuals and businesses concerned and pull back, sending the economy into a tailspin. Overheated economic activity can increase inflation, burn through resources, and even lead to a recession.
Personal consumption expenditures (PCE) — the measure of inflation that the central bank prefers to consider — rose 2.6% over the 12 months ending in December. (January numbers won’t be available until the end of February.) “Longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets,” Powell said.
Put all together, it sounds as though the Fed is planning a steady path for now — no increases in interest rates to battle inflation and no cuts when there is no need for monetary stimulus.
In the report itself, there was some mixed news for CRE. “Meanwhile, conditions in commercial real estate (CRE) markets have recently shown signs of stabilization after a sustained period of deterioration,” the report itself read.
On the other side, “Nominal long-term Treasury yields increased moderately and Treasury market depth remained low, suggesting market liquidity remained low by historical standards.” Also, “Delinquency rates remained relatively stable in the second half of 2024 following several quarters of deterioration. Even so, delinquencies for commercial real estate loans and credit cards remained elevated relative to the pre-pandemic period.”
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