Fed's Key Inflation Rate Hot; GDP Growth Tumbles (Live Coverage)

The Federal Reserve’s primary inflation rate came in hotter than expected, while fourth-quarter GDP growth saw a bigger-than-forecast slowdown. S&P 500 futures added to losses after the data, as markets have one eye on a potential conflict with Iran and another on a possible Supreme Court Trump tariff ruling.

A possible stabilization of the job market and persistently elevated inflation has dimmed the odds of another Fed rate cut until at least June.

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8:46 am. ET

Futures Extend Losses Slightly

S&P 500 futures fell 0.3% following the GDP and PCE reports, slightly worse than before 8:30 a.m. ET. The 10-year Treasury yield ticked down one basis point to 4.06%.

8:43 a.m. ET

Government Shutdown Impact

Direct government purchases and investment fell 5.1% in the quarter, including 16.6% at the federal level. That subtracted nine-tenths of a percentage point from GDP growth.

President Donald Trump, in a Truth Social post before the GDP report was released, claimed the shutdown cut “at least two points in GDP.”

8:39 a.m. ET

GDP Slumps

Q4 GDP rose 1.4%, following 4.4% growth in Q3. The government shutdown weighed. Still, the data was worse than it looked. Private sales to final domestic purchasers, closely watched by the Fed, rose 2.4%.

8:37 a.m. ET

Fed Inflation Gauge Overshoots

The core PCE price index rose 0.4% on the month and 3% from a year ago. November’s reading may have been understated due to the government shutdown.

GDP Forecasts

Wall Street economists are forecasting 2.8% GDP growth for Q4, down from 4.4% in Q3. Personal consumption expenditures are expected to rise 2.4%, slowing from 3.5% growth in the prior quarter.

Thursday’s data showing the trade deficit unexpectedly jumped to $70.3 billion in December has moderated expectations for Q4 GDP growth because more of the growth came from foreign production. To look through the impact of volatile trade data, the Fed focuses on final sales to private domestic purchasers.

Fed Inflation Gauge

The Fed pays most attention to the core PCE price index, rather the the core consumer price index. Core PCE inflation will be released with the December personal income and outlays report.

Economists expect the core PCE price index to rise 0.3% on the month and 2.9% from a year ago. The headline index, including food and energy, is seen rising 0.3% in December and 2.8% from a year ago.

Fed Rate-Cut Odds

Ahead of the GDP and PCE inflation data, markets see just 6% odds of a rate cut at the March 18 Fed meeting, according to CME Group’s FedWatch tool. Odds of a Fed rate cut by the April 29 meeting stand at 20%, rising to 58% by the end of the June 17 meeting.

S&P 500

S&P 500 futures are off 0.1% ahead of the economic releases. On Thursday, the S&P 500 lost 0.3%. That ended a three-day rally and left the S&P 500 still below its 50-day moving average.

Be sure to read IBD’s The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.

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