
PNC economists provide insight into key indicators that may have an impact on current business performance and the path ahead.
Federal Funds Rate
- As expected, the Federal Open Market Committee (FOMC) left the fed funds rate unchanged in its January 29 policy statement, in a range between 4.25% and 4.50%. The FOMC has cut the fed funds rate by a cumulative 100 basis points since it started easing in September. The decision was unanimous.
- The FOMC said that “inflation remains somewhat elevated,” which was included in the previous statement on December 18, but the committee took out wording that inflation “has made progress toward the Committee’s 2% objective.” This suggests more concern about recent inflation readings. Fed Chair Jerome Powell said that the central bank needs to see “real progress on inflation or some weakness in the labor market” before it will consider making adjustments. His statements also suggested the FOMC will not respond to tariffs until there is more clarity on the tariffs themselves and their impacts on growth and inflation.
- PNC’s baseline forecast in 2025 is for two additional fed funds rate cuts of 25 basis points each, but the timing of those cuts is uncertain. This would take the fed funds rate to a range of 3.75% to 4.00% by the end of 2025.
U.S. Goods and Services Trade Deficit
- The U.S. trade deficit in goods jumped 18% to a record high of $122.1 billion in December 2024, from $103.5 billion in November after seasonal adjustment. The goods trade deficit has been on an upward trend over the past year. The jump came from narrower exports and an increase in imports on the month. Goods imports jumped 4% to $289.6 billion on the month, and goods exports fell 4.5% to $167.5 billion. Over the past year, the trade deficit in goods has risen 39%.
- There was a broad-based retreat in goods exports in December, led by consumer goods (down 8.5%) and autos (down 6.7%). Weak industrial activity overseas also weighed on U.S. exports of industrial supplies, falling 4.8% on the month and 5.6% from last year. On a year-ago basis, total exports dropped 1.6%.
- Goods imports increased on the month, led by industrial supplies, which jumped 19% ahead of the new administration’s international trade policies. Consumer goods also increased, supported by a strong U.S. labor market at the end of 2024. On a year-ago basis, goods imports climbed more than 12% in December, with strong growth in all categories of goods except for autos, which were down 5.8%.
- In PNC’s view, the current strong U.S. dollar and robust U.S. labor market will continue to support imports of consumer goods over the near term. PNC expects positive trade flows from last year with improvements in overseas economic growth in 2025, but incoming tariffs and retaliations on protective trade measures would be downside risks to global trade flows in 2025.
Employment
- Initial unemployment claims rose by 6,000 to 223,000 in the week ending January 18, a second straight weekly rise. This more than reversed the decline over the holidays, which can understate initial claims. The four-week moving average of claims, which smooths out some of the holiday and weekly volatility, rose by 1,000 to 213,500 in the week ending January 18, which is only slightly above its level one year ago. Although claims are up from just above 200,000 in early 2024, they remain historically low, indicating low layoffs.
- Continuing unemployment insurance claims surged by 46,000 to 1.899 million in the week ending January 11. The four-week moving average of claims rose by only 500 to 1.866 million, the lowest level since mid-October 2024. Both levels are well above this same time the previous year. With hiring slowing but the job market still in good shape, it is taking unemployed workers longer to find a new job.
- The December jobs report was better than expected, with very strong job growth in both the employer and household surveys and a drop in the unemployment rate. Slower wage growth was good news from an inflation perspective, even as labor market earnings continue to rise faster than prices. In PNC’s view, the job market should remain sturdy in 2025, with continued, albeit smaller, job gains and an unemployment rate inching higher to near 4.5%.
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PNC economists provide analyses and forecasts of national, regional, and global economic and financial trends. For more economic data and reports, visit www.pnc.com/economicrelease.
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