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- The Federal Reserve kept rates unchanged last week, signaling patience on policy while markets absorbed news of a forthcoming change in Fed leadership.
- Weekly jobless claims remained low, while a sharp rise in the trade deficit weighed on near-term growth estimates.
- Producer price data last week showed faster-than-expected inflation at the wholesale level, driven largely by rising service costs.
1. Fed Signals Patience as Leadership Transition Comes into Focus
The Federal Reserve concluded its January meeting last week by keeping the federal funds target range at 3.5%–3.75%, in line with expectations following a series of rate cuts late last year.1 Policymakers pointed to signs that the labor market had stabilized, with both hiring and layoffs slowing, while inflation remained above target but continued to ease. The Fed’s preferred inflation measure, the Personal Consumption Expenditures Price Index, moderated to 2.8%, with progress toward the 2% goal appearing to have slowed.2
After reducing rates at three consecutive meetings, the central bank has shifted to a more patient stance. The updated policy statement emphasized steady economic growth and removed references to heightened downside risks to employment, signaling less urgency for additional near-term easing. With policy now viewed as close to neutral, officials seemed prepared to pause for several months while monitoring incoming data.
Market attention also turned to leadership developments after President Trump announced Kevin Warsh as his nominee to become the next Fed chair. The U.S. dollar strengthened modestly following the news, while bond market reactions were mixed and equities edged lower. Investors appeared to be weighing how Warsh’s past focus on inflation could influence the timing and pace of future rate cuts.
Looking ahead, a stable labor market and gradual disinflation could still allow for one or two additional cuts later in the year, though the policy path may become clearer as the leadership transition unfolds.
2. Claims Data Signal Labor Market Stability as Trade Gap Widens
Last week’s economic data painted a mixed but broadly steady picture of the U.S. economy. Initial jobless claims declined by 1,000 to 209,000, easing from the prior week’s revised level and indicating that layoffs remain limited.3 Seasonal adjustments tied to the holidays and severe winter weather continued to add noise to weekly figures, but broader trends suggested little change in underlying labor market conditions. Continuing claims also fell, declining by 38,000 to 1.83 million, a move consistent with both low layoff activity and some workers reaching the end of benefit eligibility.3 The unemployment rate, which edged down to 4.4% in December, appeared stable heading into January despite signs of softer hiring momentum.4
At the same time, trade data showed a notable deterioration. The U.S. trade deficit widened sharply to $56.8 billion in November, driven largely by a surge in capital goods imports linked to strong investment demand.5 Exports declined over the period, particularly in industrial and energy-related categories. The wider deficit prompted several forecasters to lower fourth-quarter economic growth estimates, even though trade had contributed positively earlier in the year. Overall, the data pointed to a labor market holding firm amid shifting trade dynamics.
3. Producer Prices Accelerate, Led by Services Inflation
Initial U.S. producer prices increased sharply last week, pointing to renewed inflation pressure late in the year. The Producer Price Index rose 0.5% in December, accelerating from November’s 0.2% pace and coming in well above expectations.4 A 0.7% increase in services prices over the prior month drove the increase. Meanwhile, goods prices were unchanged.4 Excluding food, energy, and trade services, core producer prices rose 0.4%, marking the eighth consecutive monthly increase and signaling persistent underlying cost pressures.4
On a year-over-year basis, producer prices held steady at 3.0%, exceeding forecasts for a modest slowdown.4 The data suggested that disinflation at the producer level may be losing momentum, particularly within service-related categories that tend to cool more slowly.
The stronger-than-expected report appeared to support the view that price pressures remain uneven and may take longer to fully subside. While producer prices are only one input into broader inflation trends, December figures highlighted that cost pressures upstream have not yet been fully resolved and could continue to influence pricing dynamics in the months ahead.
For the period ending 1/30/25.
* Small-cap stocks are represented by the Russell 2000® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.
Sources
1 Reuters
2 The Federal Reserve
3 U.S. Department of Labor
4 U.S. Bureau of Labor Statistics
5 Bureau of Economic Analysis
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We undertake no duty or obligation to publicly update or revise the information contained in these materials. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of securities, or information about the market, as indicative of future results.
A Composite PMI is a single index that tracks economic activity by combining the performance of both the manufacturing and services sectors, providing a comprehensive overview of overall business conditions.
Nothing contained herein should be considered a solicitation to purchase or sell any specific securities or investment-related services. It should not be assumed that any of the securities transactions or holdings discussed were, or will prove to be, profitable.
The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending. The CPI is a measure of inflation and deflation. The CPI report uses a different survey methodology, price samples, and index weights than the producer price index (PPI).
Additional Disclosures: International and Foreign Securities, Fixed Income Investments, the Consumer Price Index, the Producer Price Index.
Comparative Index Descriptions: The Standard & Poor’s (S&P) 500 Index, The Russell 200® Index, The NASDAQ Composite Index, The MSCI EAFE Index, Dow Jones Industrial Average® (Dow Jones or DJIA), The Bloomberg Barclays US Aggregate Bond Index (US Agg Bond), The CBOE Volatility Index (VIX). CSP2026001_05
