The Federal Reserve Open Market Committee cut one quarter point as expected while projecting less easing in 2025. U.S. PMI trends improved on continued Services sector strength. November consumer inflation measured by BEA was cooler than the BLS measure. The Conference Board Leading Economic Index improved for the first month in more than 2 years. Congress passed a continuing resolution to allow for more deficit spending but with less pork than they initially planned.

The FOMC reduced the overnight Fed Funds rate -1/4 point (December 18) while maintain their pace of Quantitative Tightening. The updated Summary of Economic Projections moved the Fed Funds projection dot plot higher with the 2025 year end projected rate now 3.9% from 3.4% in September’s SEP. The projection implies a -1/2 point reduction from the current rate.

In discussion the FOMC outlook relative to its dual mandate, Chairman Jay Powell noted, “We see the risks as two-sided, moving too slowly and needlessly undermine economic activity and the labor market, or move too quickly and needlessly undermine our progress on inflation. So, we’re trying to steer between those two risks and on balance we decided to go ahead with a further cut. And I’ll give you some details on why. Downside risks to the labor market do appear to have diminished, but the labor market is now looser than pre-pandemic and it’s clearly still cooling further. So far, in a gradual and orderly way. We don’t think we need further cooling in the labor market to get inflation down to 2 percent. Job creation is now well-below the level or certainly below the level that would hold unemployment constant, the job finding rate is low and declining, and other measures such as surveys and workers and businesses, quits, things like that, broadly show a much cooler labor market than there was — than we had in 2019. It’s still quite gradually cooling.”

The November Personal Consumption Expenditures Price Index (December 20) found more modest price increases in the month compared with the BLS Consumer Price Index. The 6-month annualized core PCE rate has held flat the past four months at 2.6% as November core PCE increased just 0.1%.

 The S&P Global Flash December U.S. PMI (December 16) showed accelerating Service sector strength and continued Manufacturing weakness. Report commentary noted, “Business is booming in the US services economy, where output is growing at the sharpest rate since the reopening of the economy from COVID lockdowns in 2021. The service sector expansion is helping drive overall growth in the economy to its fastest for nearly three years.” The comments added, “it’s a different picture in manufacturing, however, where output is falling sharply and at an increased rate, in part due to weak export demand.” Comments concluded, “some of the high spirits seen after the election in the manufacturing sector have been checked over concerns surrounding tariffs and the potential impact on inflation resulting from the higher cost of imported materials. December saw raw material prices spike sharply higher amid supplier-led price rises and higher shipping costs, in a reflection of busier supply chains in advance of threatened protectionism in the new year.”