The economy grew by an unexpected 3.3% in the fourth quarter. I say unexpected because the numbers came in above economist’s predictions. Readers of our blog and newsletter know that we were not on board with those expectations. The numbers pose a challenge to the market’s assumption of five or even seven cuts this year. We might still see the three that the Fed “penciled in” late last year. The recent GDP number indicates that inflation could be stickier than the Fed hopes.
Below is a chart from the St. Louis Fed illustrating the difference between GDP growth before and after adjusting for inflation over the last five years. The numbers are through the third quarter, but illustrative of the impact of inflation.