The economy has been growing steadily, with the GDP increasing by 2.3% in the last quarter of 2024. This growth was mainly driven by strong consumer spending. However, recent data shows that spending may be slowing compared to the rapid pace seen in late 2024.
Surveys suggest that both businesses and households are feeling uncertain about the economy’s future. While it’s unclear how this will impact future spending and investments, past trends show that sentiment surveys are not always accurate in predicting consumer behavior. Experts continue to closely monitor household and business spending.
Job Market Remains Strong
The labor market is stable and strong. In February, businesses added 151,000 new jobs, keeping the unemployment rate at 4.1%. Over the past six months, job growth has averaged 191,000 jobs per month. The unemployment rate has remained between 3.9% and 4.2% over the last year.
The number of available jobs compared to workers has become more balanced, and fewer people are quitting their jobs than before the pandemic. Wages are still rising faster than inflation, but at a slower, more sustainable pace. Because of this, wage growth is not causing inflation to rise.
Inflation Is Lower, But Still Above Target
Inflation has dropped significantly from its peak of over 7% in mid-2022, and this improvement happened without a sharp rise in unemployment, which is a good sign. However, inflation is still slightly above the 2% target set by policymakers.
Prices continue to fluctuate, but there has been progress in areas like housing services and non-housing services, where inflation was previously high.
In January, the Personal Consumption Expenditures (PCE) price index rose 2.5% over the past year, while core PCE, which excludes food and energy, increased 2.6%. Some short-term measures of inflation expectations have ticked up slightly, with tariffs playing a role, but long-term expectations remain steady.
New Government Policies May Impact the Economy
The new administration is making big policy changes in four areas: trade, immigration, government spending, and regulations. These changes could affect the economy and monetary policy, but it’s still too early to know their full impact.
Some policies, like trade changes, are already taking effect, but many details remain uncertain. Policymakers are taking a wait-and-see approach, rather than making quick decisions based on limited data.
Flexible Monetary Policy to Manage Risks
Interest rate policy remains flexible and will adjust based on economic conditions. If growth remains strong but inflation stays above 2%, policymakers may keep interest rates high for longer. However, if the job market weakens or inflation drops faster than expected, they may lower rates.
For now, decision-makers are waiting for clearer signs before making major changes. Their goal is to keep the economy stable while managing both inflation and employment.
