Divergent December. Symbolically, the last month of the calendar year is a holiday-inspired, joyous season, hallmarked by enjoying time with family, friends, and loved ones. Ironically, most market participants were unable to indulge in much of any market-related holiday cheer. Exhibiting the positive correlations that returned in November, both equity and fixed income markets finished the month in negative territory, discarding any aspirations of the colloquial “Santa Clause rally.” However, for a second consecutive year, U.S. broad-based stock and bond indices (with the exception of longer-maturity bonds) both closed the year in positive territory, offering investors a much-welcomed consolation gift comprised of year-long upside performance.
Fulfilling its year-end policy projections, on December 8, at the conclusion of the Fed’s eighth and final policy meeting of 2024, the FOMC enacted its third rate reduction in its policy normalization quest, tapering its overnight benchmark rate 25 basis points, lowering the federal funds target rate range to 4.25% - 4.50%. Similar to September’s outsized 50 basis point rate-cut decision which saw a dissenting vote from Fed Governor Michelle Bowman, Beth Hammack, President of the Federal Reserve Bank of Cleveland, decided to follow suit and cast the lone dissenting vote, favoring to maintain the target rate range at 4.50% - 4.75%. In aggregate, the FOMC has reduced its overnight benchmark rate 100 basis points since September. Endeavoring to make monetary policy less restrictive, communiqué from Fed officials has concurrently been inconsistent, and at times, contradictory.
Adhering to quarter-end months’ policy meeting protocol, the Fed released its updated Summary of Economic Projections (SEP), which provided deeper insights into the Committee’s assumptions and forecasted trajectory for the conclusions of 2024 and 2025. Revised from September’s projections for 2024, the change in real GDP was boosted to 2.5% from 2.0%, and the unemployment rate was slashed to 4.2% from 4.4%. Headline PCE inflation and core PCE inflation were ticked up +0.1% and +0.2%, to 2.4% and 2.8%, respectively. Regarding interest rates, the median federal funds rate was set at 4.4% on the backdrop of December’s rate cut, and the longer-run neutral rate was once again inched up +0.1% to 3.0%. Sifting through 2025’s forecasts, the updated projections for the change in real GDP and the unemployment rate were essentially in accord with September’s projections at 2.1% and 4.3%, respectively. However, headline PCE inflation and core PCE inflation were lifted +0.4% and +0.3%, respectively, with both now projected to end the year at 2.5%. Even more compelling, the 2025 year-end median federal funds rate is projected to settle at 3.9% as opposed to September’s forecast of 4.4%, indicating a total of 50 basis points in interest rate reductions in 2025, 50 less than the 100 that was penciled in only three months prior.
Analyzing the updated dot plot further accentuates the divergences in the 2025 rate-setting policy expectations that exist amongst Fed officials. Of the 19 policymaking members, 25 basis point rate cut projections are as follows: Zero Cuts – one member; One Cut – three members; Two Cuts – ten members; Three Cuts – three members; Four Cuts – one member; Five Cuts – one member. Needless to say, discord amongst policymakers is indeed palpable.

U.S. Treasury yield curve underwent a “normalization twist” where money-market yields declined, and intermediate and longer-date yields rose, normalizing the non-money-market tenors of the yield curve. Inversions between key tenor pairs no longer prevail.
2-year/10-year spread: 33 basis points
3-month/10-year spread: 25 basis points
2-year/5-year spread: 14 basis points
3-month/30-year spread: 46 basis points
U.S. Treasury Yield Curve Source: Bloomberg
December 2024 Macroeconomic Highlights
Inflation, Expectations, and Consumer Sentiment1:
CPI: 2.7% year-over-year (+0.3% month-over-month); Core CPI: 3.3% year-over-year (+0.3% month-over-month)
PCE: 2.4% year-over-year (+0.1% month-over-month);Core PCE: 2.8% year-over-year (+0.1% month-over-month)
PPI: 3.0% year-over-year (+0.4% month-over-month); Core PPI: 3.4% year-over-year (+0.2% month-over-month) Core PPI less trade services: 3.5% year-over-year (+0.1% month-over-month)
Inflation Expectations: 1-year horizon: 3.0%, 3-year horizon: 2.6%, and 5-year horizon: 2.9%
Consumer Sentiment: 74.0 vs. 71.8 in November; Current Conditions: 75.1 vs. 63.9 in November
Consumer Expectations: 73.3 vs. 76.9 in November
Labor Market2: The U.S. economy added 227,000 nonfarm payrolls in November, marginally exceeding the 220,000 expected by economists surveyed by Bloomberg. Notable job gains occurred in health care (+54,000), leisure and hospitality (+53,000), government (+33,000), and transportation equipment manufacturing (+32,000).
U-3 official unemployment rate: 4.2% vs. 4.1% expectation: +0.1% from October 2024.
U-6 unemployment rate (marginalized, part-time workers for economic reasons): 7.8% (+0.1%).
Labor force participation rate: 62.5% (-0.1%); Employment-to-population ratio: 59.8% (-0.2%).
Average hourly earnings for private nonfarm payrolls rose 13 cents to $35.61 (+0.4% month-over-month, +4.0% year-over-year).
Revisions: October 2024 raised +24,000 to 36,000; September 2024 boosted +32,000 to 255,000.
Gross Domestic Product (GDP)3: According to the third and final estimate, real GDP increased at an annual rate of +3.1% in the third quarter of 2024 vs. +3.0% in the second quarter of 2024.
Consumption: +3.7%; GDP Price Index: +1.9%; PCE Price Index: +1.5%; Core PCE Price Index +2.2%.
Real disposable personal income: +1.1% vs. +2.4% in the second quarter of 2024.
Personal savings rate as a percentage of disposable income: 4.3% vs. 5.2% in the second quarter of 2024.
Average of Real GDP and Real GDI: +2.6% vs. +2.5% in the second quarter of 2024.
Housing Market4: Existing-home sales climbed +4.8% (month-over-month) from October to a seasonally-adjusted annual rate of 4.15 million in November. Month-over-month sales in the Northeast, South, and Midwest expanded +8.5%, +5.6%, and +5.3%, respectively, while sales in the West were unchanged.
Year-over-year sales jumped +6.1%, up from 3.91 million in November 2023.
Total housing inventory registered 1.33 million units, -2.9% from October, but +17.7% from one year ago (1.13 million units). Unsold inventory sits at a 3.8-month supply at the current sales pace.
The median existing-home price for all housing types was $406,100, +4.7% from November 2023 ($387,800), as prices rose in all four major U.S. regions.
Average commitment rate for a 30-year, conventional, fixed-rate mortgage: 6.85%.
New Home Sales: 664,000 (+5.9% month-over-month).
1 Source: Bureau of Labor Statistics (BLS), U.S. Department of Commerce, Federal Reserve Bank of New York – Survey of Consumer Expectations, and University of Michigan Surveys of Consumers
2 Source: Bureau of Labor Statistics (BLS)
3 Source: Bureau of Economic Analysis (BEA)
4 Source: National Association of Realtors (NAR), U.S. Census Bureau, and The Department of Housing and Urban Development
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