US Treasury yields were mixed with short-term rates rising and long-term yields declining. Equities mostly rose, market volatility persisted, the Fed held rates steady, oil fell, gold surged, and Bitcoin declined slightly.

US Treasury bond yields closed the week mixed, with short-term rates edging higher while long-term yields fell. The yield curve has resumed its typical upward slope, a pattern that has historically appeared ahead of recessions. Despite former President Trump's calls for rate cuts, Federal Reserve Chair Jerome Powell held rates steady, emphasizing concerns about inflation and signs of continued economic strength.

US equity markets closed the week in positive territory, except for the Russell 2000. Small-cap stocks underperformed their large-cap counterparts, with the "Magnificent 7" declining by 1.20%. The S&P 500 posted its best January since 2023, as a strong start to the year is typically associated with positive annual performance. Market volatility was evident from the beginning of the month, driven by payroll data, inflation reports, the emergence of DeepSeek, the Federal Reserve meeting, and Trump's proposed tariffs.

The US dollar strengthened against the euro, rising to 0.960153. Crude oil (WTI) prices fell 1.06% as US stockpiles increased by 3.46 million barrels, raising concerns about oversupply and weakening demand. China’s PMI declined to 49.1, signalling a slowdown in industrial activity and adding downward pressure on global crude oil prices. Meanwhile, gold prices rose 1.95%, marking their fifth consecutive week of gains. Gold had a strong start to the year, climbing more than 7% in January—its best opening month since 2015. In contrast, Bitcoin edged down 0.38%.

The Fed kept rates unchanged, prioritizing caution amid economic stability. It delayed rate cuts due to inflation concerns, housing market challenges, and tariff-related uncertainties.

The Fed kept interest rates at 4.25–4.50%, signalling caution amid 3% inflation and 2.8% GDP growth, delaying cuts until mid-2025 despite President Trump’s push for immediate easing. The Fed’s decision reflects confidence in the economy, with strong consumer spending and low unemployment, though inflation remains somewhat elevated. GDP growth in Q4 2024 slowed to 2.3%, hindered by inventory drawdowns and Boeing strikes, while inflation trends toward 2%, supported by cooling employment costs. The housing market shows resilience, with a 3.6% increase in new home sales, but high mortgage rates and affordability issues continue to limit broader market recovery. Meanwhile, proposed tariffs from the Trump administration add uncertainty, as their impact on inflation and economic activity remains unclear. With the Fed holding rates steady, it awaits further data, likely keeping rates unchanged until mid-2025.

The Fed held rates at 4.25–4.50%, signalling caution amid 3% inflation and 2.8% GDP growth, delaying cuts until mid-2025 despite Trump’s calls for immediate easing.

The Federal Reserve's decision to hold interest rates at 4.25–4.50% reflects its confidence in the economy’s resilience, supported by 2.8% GDP growth in 2024, a 4.1% unemployment rate, and core inflation around 3.0%. Despite cutting rates by 100 basis points in late 2024, the Fed has now adopted a more cautious stance, requiring clear signs of economic weakening before considering further reductions. Notably, officials removed language suggesting inflation was making progress toward 2%, instead calling it “somewhat elevated.” Chair Jerome Powell reiterated that there is no urgency to adjust rates and emphasized data dependence, while also noting that the Fed remains above the neutral rate. At the same time, President Trump’s push for immediate rate cuts, coupled with proposed 25% tariffs on Mexico and Canada and 10% on China, adds to policy uncertainty. Powell declined to comment on the administration’s influence but acknowledged that the Fed is analysing a range of potential policy outcomes, including tariffs, immigration, and regulatory changes.

Looking ahead, the Fed anticipates two 25bp rate cuts in the second half of 2025, with a potential third in early 2026, pushing back earlier expectations of three cuts this year. Powell refrained from specifying a timeline for ending QT but emphasized that bank reserves remain ample. Meanwhile, long-term Treasury yields continue to hover above 4.5%, signalling market scepticism toward aggressive rate cuts. The Fed attributes this rise to the term premium rather than inflation expectations or political developments. Powell also highlighted that the real estate sector appears stable, housing inflation is steadily easing, and the labour market is not contributing to inflationary pressures. While asset prices remain elevated, the Fed does not see any immediate financial stability concerns. Additionally, Powell reaffirmed that banks can participate in cryptocurrency activities as long as they effectively manage associated risks.

We anticipate at least one rate cut in 2025, but caution remains key as the Fed awaits upcoming inflation data and payroll revisions to guide its next steps.

US GDP grew 2.3% in Q4 2024, driven by strong consumer spending but weighed down by inventory drawdowns and Boeing strikes, with 2025 growth expected to moderate.

US GDP expanded “only” 2.3% in Q4 2024, below the 2.6% consensus forecast, yet underlying strength persists, supported by robust consumer spending (4.2%) and a 5.3% rise in residential investment. Government spending also contributed, increasing by 2.5%. The headline weakness stemmed from a sharp 0.9 percentage point drag due to inventory drawdowns and a 2.2% decline in non-residential investment, including a 7.8% drop in equipment investment, largely attributed to Boeing strikes. Net trade had a neutral impact despite December’s unexpectedly large trade deficit. Looking ahead, inventories are likely to rebound, and aircraft-related investment should recover, but surging imports—driven by firms front-loading purchases to bypass potential tariffs—pose a downside risk. While consumer resilience remains a key driver, a cooling labour market, slowing nominal income growth, and tighter financial conditions—including a 90bp rise in Treasury yields, elevated borrowing costs, and an 8% appreciation of the dollar since September—may weigh on momentum. After 2.8% GDP growth in 2024, a moderation to 2.3% is projected for 2025.

We expect the economy to remain resilient under the new administration, with consumer resilience continuing as the Trump administration drives increased spending and economic activity.

US inflation is on track for 2%, with cooling employment costs and PCE deflator data. However, tariff uncertainty may keep the Fed cautious, holding rates steady.

US inflation remains on track for 2%, with the core personal consumer expenditure (PCE) price deflator rising 0.2% MoM and 2.8% YoY in December, in line with consensus expectations. Notably, the MoM increase was 0.159%, below the 0.17% monthly average required to keep inflation on a steady path to 2% YoY over 12 months. The employment cost index for Q4 2024 also met forecasts, rising 0.9% QoQ, signalling that overall labour market inflation pressures are cooling. This metric, which includes all earnings and benefits, shows significant deceleration in the private sector. Additionally, the quits rate, a leading indicator for employment costs, points to further cooling, as fewer workers are changing jobs. A lower quits rate reduces pressure on employers to raise wages, easing overall inflationary pressures. Despite these positive signs, President Trump’s planned tariffs on imports from Canada and Mexico introduce significant uncertainty into the economic outlook. The White House argues that these tariffs while increasing prices on imports, will not lead to higher inflation overall, as reduced consumer spending on other goods and services is expected to offset the price hikes. However, this could negatively impact short-term demand for US-made goods and services and corporate profits. In light of the tariff uncertainty, the Fed is likely to maintain a wait-and-see approach, keeping rates steady until the broader economic impact becomes clearer, potentially until June 2025.

We expect a rebound in inflation in the coming months due to the tariffs imposed by Trump.

U.S. new home sales rose 3.6% MoM in December, while home prices increased 0.41% MoM, reaching a 4.3% YoY growth, with Tampa seeing a decline.

U.S. new home sales ended December on a strong note, rising 3.6% MoM to 698,000 units, surpassing the anticipated 2.4% increase. The prior month’s sales were revised upward to a 9.6% gain, up from the initially reported 5.9%. On a year-over-year basis, new home sales grew by 6.7%. Growth was particularly robust in the Northeast and West, while sales declined in the Midwest and South. Inventory levels rose by 1.2%, totalling 494,000 units, corresponding to an 8.5-month supply, slightly down from 8.7 previously. While the rebound in sales is encouraging, the housing market continues to face challenges from elevated mortgage rates, slow construction, and affordability constraints.

Home prices in the 20 largest U.S. cities increased by 0.41% MoM in November, surpassing the expected 0.3% rise. This resulted in a YoY price growth of 4.3%, up from 4.2% in October, marking the first acceleration in annual price growth since March 2024. The price increase is likely attributed to tight housing supply and a more favourable economic outlook under the new administration. Tampa was the only city to report a YoY price decline of -0.37%, with prices reaching their lowest level since October 2023.

We do not anticipate a short-term recovery in the housing market. With mortgage rates around 7% and slower housing construction, a rebound in the sector seems unlikely in the near term. These factors are expected to continue putting pressure on affordability and limiting overall market growth.