Weekly Economic Snapshot: Inflation Heat Meets a Cooling Economy

Core Insights - The U.S. economy is experiencing conflicting signals with a sharp deceleration in growth and unexpectedly stubborn inflation, complicating the outlook for potential interest rate cuts later this year [1] Inflation Data - The Core Personal Consumption Expenditures (PCE) Price Index rose to 3.0% year-over-year, exceeding the 2.9% forecast and up from November's 2.8% [1] - The headline PCE index increased by 2.9% annually, surpassing both the previous month's data and forecast, with both core and headline prices rising by 0.4% monthly, marking the sharpest monthly growth since February [1] Economic Growth - Real GDP expanded at an annual rate of 1.4% in the fourth quarter of 2025, a significant decline from the 4.4% growth in the third quarter and only half of the 2.8% forecast [1] - The expansion was primarily driven by increases in consumer spending and business investment, but these gains were offset by declines in exports and government spending [1] Consumer Sentiment - The University of Michigan Consumer Sentiment Index rose to 56.6, reaching a six-month peak, although it fell short of the 57.3 forecast and remains historically low [1] - The "current conditions" subcomponent rose for the second month, while the "expectations" subcomponent fell for the first time in four months due to ongoing price pressures [1] - Near-term inflation expectations cooled to 3.4%, the lowest in over a year, while long-term expectations remained unchanged at 3.3% [1] Market Reactions - The S&P 500 posted a weekly gain of 1.1%, marking its first weekly gain since January, while the S&P Equal Weight Index rose by 0.6% [1] - The 10-year Treasury yield finished the week at 4.08%, and the 2-year note at 3.48% [1] - The CME FedWatch Tool indicates a 96% chance that the Federal Reserve will hold rates steady at their next meeting, with markets pricing in two 25 basis point cuts in 2026 [1]