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What’s going on here?

The Federal Reserve’s (the Fed) winning inflation gauge came out trumps again, indicating that US price rises slowed down some more in December.

What does this mean?

The last year of inflation doomsaying will have you well acquainted with the Consumer Price Index (CPI). The Fed, though, actually prefers to check the Personal Consumption Expenditure (PCE) data. Both indicate the pace at which prices are changing, but the PCE also includes some more complex adjustments like shoppers swapping to cheaper substitutes. Over the last few months, the PCE has been trending slightly below the CPI. And this release was no different: while the CPI moved slightly higher in December, showing prices rising by 3.4% from the year before, the PCE held steady at 2.6%.

Why should I care?

For markets: Home, sweet homes.

Higher interest rates have made mortgage rates steep enough to stop current homeowners from upgrading their digs. That means few homes are being put on the market – and whenever something is limited edition, it’ll usually fetch a higher price. Now traditionally, lower rates run the risk of higher inflation. But some analysts now think lower interest rates could encourage more homeowners to list their houses and, in turn, calm prices across the market. And because housing costs make up about a third of the CPI, that should take some energy out of inflation, too.

The bigger picture: Back to the drawing board.

The Fed hinted back in December it would cut rates six times in 2024. Ever since that, investors have been expecting the first to land sooner rather than later – after all, six is a lot to squeeze into a year. But with Thursday’s data showing that the US picked up more than expected in the last quarter of the year, and with inflation toeing the line, the central bank may wait it out a while longer.

What’s going on here?

The US economy pulled itself up by 3.3% last quarter, wrapping up a year that was essentially a masterclass in defying a recession.

What does this mean?

The US clinched the title of the world’s fastest-growing economy last quarter, fattening up by 3.3% from the same time the year before. Now it’s true, that is a comedown after the previous quarter’s 4.9%. But with the Federal Reserve (the Fed) keeping rates high to make sure inflation’s done for, and suppressing the economy in the process, a 3.1% uptick over the year as a whole was still more than economists expected.

What’s more, with recent data showing that interest rates seem to be bringing inflation to a slow halt, and without doing the same to the economy, the Fed might have just swerved a recession and pulled off the ideal “soft landing”.

Why should I care?

For markets: No prizes for second place.

The US has clearly emerged from the pandemic in much better shape than China. Not long ago, economists wouldn’t have doubted China’s ability to overtake the States, nabbing the top spot as the biggest economy in the world. But recent data has essentially hushed those whispers, and that’s reflected in the stock market: US stocks reached record highs this week, while Chinese ones have fallen more than 20% in the last year.

Zooming out: The US is getting smarter.

Interest rates might not be the only driver behind stateside success, mind you. The Secretary of the US Treasury has said higher productivity – like when companies use better-skilled workers or advanced technology – could be stimulating the economy without stoking inflation. If that’s true, then AI solutions could be about to whip the US into even better shape.