January 2025 Economic Review
Increased uncertainty around the new Trump administration’s trade and fiscal policies and a lack of progress on the final push to the Federal Reserve’s 2% inflation target have driven treasury bond yields back up to multi-month highs. The 2yr treasury yield hovers near its November and December highs while the 10yr yield remains near 2024’s highs and within shouting distance of the multi-decade high set in October of 2023.
The December nonfarm payrolls report didn’t provide any cover for the FOMC to further lower rates at the January meeting as the headline number came in at +223k jobs, much higher than the +140k increase expected. This readout illustrates the continued resilience of the U.S. labor market even in the face of the tightest monetary policy conditions post Global Financial Crisis.
The most recent consumer price index (CPI) report has helped to partially quell concerns about a potential reacceleration of inflation. The month-over-month change in headline CPI of 0.4% was attention grabbing; however, it is the “core” CPI (ex-food and energy) month-over-month reading of 0.2% that is the focus for market participants. This 0.2% increase was less than the 0.3% increase expected and much more in line with the Federal Reserve’s 2% annual inflation target.
The FOMC most recently decreased the Federal Funds rate to between 4.25%-4.5% at the December meeting. Cutting was a close call given the continued strength in the labor market and sticky inflation. Fed fund futures are currently only pricing in one more 25 basis point cut in the latter half of this year.
Moving forward, fixed income investors will be watching the new administration’s actions closely as trade policies, progress around the Department of Government Efficiency, and any other changes to fiscal policy could have significant impacts on inflation expectations and the future path of the federal funds rate.
Current Economic Releases |
|||
| Data | Period | Value | |
| GDP QoQ | Q3 ’24 | 3.10% | |
| US Unemployment | Dec ’24 | 4.10% | |
| ISM Manufacturing | Dec ’24 | 49.3 | |
| PPI YoY | Dec ’24 | 3.30% | |
| CPI YoY | Dec ’24 | 2.90% | |
| Fed Funds Target | Jan 16, 2025 | 4.25% – 4.50% | |
Treasury Yields |
|||
| Maturity | 1/15/25 | 12/16/24 | CHANGE |
| 3-Month | 4.301% | 4.307% | -0.005% |
| 6-Month | 4.290% | 4.309% | -0.019% |
| 1-Year | 4.168% | 4.238% | -0.071% |
| 2-Year | 4.264% | 4.249% | 0.015% |
| 3-Year | 4.337% | 4.230% | 0.107% |
| 5-Year | 4.447% | 4.257% | 0.190% |
| 10-Year | 4.653% | 4.397% | 0.256% |
| 30-Year | 4.880% | 4.598% | 0.281% |
Agency Yields |
|||
| Maturity | 1/15/25 | 12/16/24 | CHANGE |
| 3-Month | 4.170% | 4.130% | 0.040% |
| 6-Month | 4.120% | 4.150% | -0.030% |
| 1-Year | 4.000% | 3.980% | 0.020% |
| 2-Year | 4.251% | 4.217% | 0.035% |
| 3-Year | 4.304% | 4.206% | 0.099% |
| 5-Year | 4.462% | 4.283% | 0.179% |
Commercial Paper (A1/P1) |
|||
| Maturity | 1/15/25 | 12/16/24 | CHANGE |
| 1-Month | 4.330% | 4.440% | -0.110% |
| 3-Month | 4.420% | 4.520% | -0.100% |
| 6-Month | 4.460% | 4.500% | -0.040% |
| 9-Month | 4.490% | 4.510% | -0.020% |
Source: Bloomberg. Data as of January 20, 2025. Data unaudited. Many factors affect performance including changes in market conditions and interest rates and in response to other economic, political, or financial developments. Investment involves risk including the possible loss of principal. No assurance can be given that the performance objectives of a given strategy will be achieved. All comments and discussions presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information presented should not be used in making any investment decisions. This material is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.
