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.