Fed Watch: Q4 GDP Masks Hidden Strength as Inflation Nowcasts Signal Policy Pivot Ahead

The Numbers That Matter Today (February 4, 2025)

While headline Q4 GDP registered a modest 2.3% growth, the underlying domestic demand surged at 3.1%—suggesting resilient economic momentum as markets anticipate the Fed's next move.

Core Analysis

Key Developments:

  • Q4 2024 GDP growth landed at 2.3% QoQ annualized, beating consensus expectations of 2.0%
  • December 2024 inflation cooled to 2.9% YoY, signaling progress toward Fed target
  • Cleveland Fed's February nowcast points to 2.62% CPI and 3.02% Core CPI
  • Full-year 2024 GDP growth clocked in at a robust 2.8% year-over-year

Sector Impact:

  • Consumer spending emerged as the growth engine, contributing a solid +2.8 percentage points
  • Government expenditure added +0.4 percentage points to overall GDP
  • Business investment and inventories showed unexpected weakness, subtracting 1.2 points
  • Healthcare services and durable goods led consumer spending surge

Strategic Playbook

Short-Term Traders:

  • Keep powder dry for February 12 CPI release—a crucial catalyst for rate cut trajectory
  • Monitor divergence between Cleveland Fed nowcast and market consensus
  • Watch for potential volatility around proposed tariff policy announcements

Long-Term Investors:

  • Consider increasing cyclical exposure given robust domestic demand signals
  • Position for sector rotation as Fed policy pivot approaches in H2 2025
  • Factor in election-year policy uncertainty when building H2 positions

Forward Outlook

Key Catalysts:

  • January CPI Report (February 12, 8:30 AM ET)
  • Multiple Fed policy meetings through H1 2025
  • Projected three rate cuts in H2 2025, targeting neutral rate of 3.00-3.25% by mid-2026

Risk Radar:

  • Election-driven policy uncertainty could impact H2 2025 growth trajectory
  • Proposed tariff changes may affect trade flows and inflation expectations
  • Hurricane Milton's aftermath might influence future investment patterns
  • Potential slowdown in economic activity during H2 2025

Sources

  • U.S. Bureau of Labor Statistics - December 2024 CPI Report (January 15, 2025)
  • Federal Reserve Bank of Cleveland - Inflation Nowcasting Data (February 3, 2025)
  • The Conference Board - Global Economy Brief by Yelena Shulyatyeva (January 30, 2025)
  • Trading Economics - Global GDP Calendar (February 2025)
  • CoinNews Media Group LLC - Inflation Calculator (January 2025)

Analysis and opinions are for informational purposes only. Always conduct your own research before making investment decisions.