Economic Mixed Signals

The unemployment, inflation, and GDP reports issued in December provided a somewhat mixed picture as to the state of the economy heading into the new year. Unemployment rose from 4.3% to 4.6%, though job growth in November totaled 64,000 jobs, a number higher than what was expected. The labor market continued its recent trend of low hiring and low firing.

But while the jobs report was somewhat disappointing, the inflation report contained unexpected positive news. Core CPI inflation rose only 2.6% in November, well below expectations of 3%. Despite concerns about the potential inflationary effects of Trump’s sharp tariff increases, core inflation fell to its lowest level in 4 years, though it remains above the Fed’s 2% target:

However, the government shutdown that resulted in the cancellation of the October unemployment and inflation reports also caused technical issues for the November reports, suggesting that the issued numbers should be taken with a grain of salt until further data becomes available over the coming months.

GDP also grew for the third quarter of 2025 at a surprising 4.3% annualized clip, well above economist predictions, via a Dow Jones poll, of 3.2%. Consumer spending remained strong, increasing 3.5% in the quarter. However, some inflation numbers rose significantly over that span, with the core personal consumption expenditures price index climbing 2.9%, and the chain-weighted price index rising 3.8%.

All in all, given the data issues posed by the government shutdown and the mixed nature of the data, it is not surprising that markets are expecting the Fed to hold the federal funds rate steady in January. While there is about a 50/50 chance of a rate cut by March, markets currently anticipate just a modest 50bp in rate cuts by the end of 2026.

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This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy. This material has been prepared for informational purposes only, and is not intended to be or interpreted as a recommendation. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice.