Today, the Commerce Department released the fourth quarter GDP report. The report revealed that the United States economy has grown at a rate of 3.3% during Q4 last year. Economic growth for the fourth quarter last year came in well above expectations by economists polled by Dow Jones. Economists were expecting that the fourth quarter GDP would only show an economic growth of 2%. The resilience and strength of the U.S. economy was a surprise, especially considering the Federal Reserve’s restrictive monetary policy, which took its benchmark interest rate from between 0 and a ¼% in March 2022 to its current rate of between 5 ¼% and 5 ½%.
Today’s report when added to reports on prior quarters last year revealed that in 2023 the economy accelerated by 2.5% on an annualized pace. Economists had only hoped for GDP strength to be above the 1.9% increase that occurred in 2022. According to the data, it was consumer spending that facilitated the expansion combined with government spending.
At the same time, the strong economic growth did not occur in tandem with continued rising inflation. Inflation eased during the final quarter of 2023. This combination of strong economic growth and diminishing inflation is credited as a primary reason that the expected recession which was assumed to be inevitable was avoided, at least for now.
The Federal Reserve’s preferred method of gauging current levels of inflation continues to be the core PCE, which strips out energy and food. The numbers revealed today showed inflation is contracting.
According to CNBC, “Core prices for personal consumption expenditures, which the Federal Reserve prefers as a longer-term inflation measure, rose 2% for the period, while the headline rate was 1.7%. On an annual basis, the PCE price index rose 2.7%, down from 5.9% a year ago, while the core figure excluding food and energy posted a 3.2% increase annually, compared with 5.1%.”
Traders will now begin to focus on tomorrow’s PCE price index report for December, which will be released tomorrow morning. If tomorrow’s report conveys the same information, it will be solid and confirming data telling the Federal Reserve that its actions and restrictive monetary policy have dampened the former runaway inflation.
This took multiple markets higher, including US equities, the dollar, and precious metals. US equities had a strong day, with the S&P 500 closing higher for the sixth day. The Dow Jones Industrial average gained 0.64%, and the NASDAQ composite increased by 0.18%.
The U.S. dollar continues to show resilience, with higher values, gaining 0.23% and taking the dollar index to its current fix of 103.517. Both gold and silver had fractional gains. As of 5:40 PM ET, the most active March silver futures contract gained $0.40 and is currently fixed at $22.925. Gold futures basis the most active February contract traded to a high of $2025.60 today, a low of $2004, after factoring in today’s gain of $6.60 February gold is currently fixed at $2021.
The Federal Reserve will convene for its first FOMC meeting of 2024 next week beginning on Tuesday, January 30, and concluding on Wednesday the 31st. As such, Federal Reserve officials have entered the one-week blackout period, which they have mandated for every FOMC meeting.
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Wishing you as always good trading,
Gary S. Wagner
