Federal Reserve Signals Cautious Rate Stance Amid Holiday Economic Data Surge

Fed Minutes Reveal Divided Views on 2026 Policy Path

The Federal Reserve released minutes from its December meeting on Monday, showing policymakers are split on future interest rate moves. Several officials expressed concerns over persistent inflation pressures despite cooling job market data. Markets reacted with a slight dip in Treasury yields.

Chair Jerome Powell highlighted in the notes that while progress on 2% inflation target continues, risks remain elevated due to supply chain issues and wage growth. This comes as U.S. GDP grew 2.8% in Q4 preliminary estimates.

Retail Sales Beat Expectations in Holiday Shopping Rush

Commerce Department data released Tuesday morning showed U.S. retail sales rose 0.4% in December, surpassing forecasts of 0.3%. Strong performances in electronics and apparel drove the gains, signaling robust consumer spending into year-end. E-commerce giants like Amazon reported record Black Friday-Cyber Monday hauls extending through holidays.

• Auto sales up 1.2% amid EV incentives.
• Discount retailers saw 0.8% lift from bargain hunters.
• Overall holiday spending projected at $1.05 trillion.

Jobless Claims Drop Unexpectedly, Unemployment Steady at 4.1%

Initial jobless claims fell to 220,000 for the week ending December 28, below economist expectations of 235,000. This indicates labor market resilience despite tech layoffs. Continuing claims held steady, supporting Fed's soft landing narrative.

Analysts point to seasonal hiring in retail and logistics bolstering figures. However, manufacturing PMI slipped to 48.2, signaling contraction in that sector.

Corporate Earnings Highlight Economic Divergences

Tech firms led after-hours gains Monday, with Nvidia reporting 25% revenue jump on AI chip demand. In contrast, Boeing shares fell after supply chain delays impacted deliveries. Energy sector mixed as oil prices hovered near $72 per barrel.

• S&P 500 up 0.5% to close at record high.
• Dow Jones gained 0.3% amid industrial strength.
• Nasdaq rallied 0.8% on semiconductor boost.

Housing Market Shows Signs of Thaw

Mortgage applications surged 12% last week, per Mortgage Bankers Association, as rates dipped to 6.6%. Pending home sales rose 1.2% in November data released Tuesday. Builders like D.R. Horton noted increased traffic despite high prices.

Federal Housing Finance Agency reported home prices up 4.5% year-over-year. Affordability challenges persist for first-time buyers in coastal markets.

Global Trade Tensions Influence U.S. Outlook

U.S. trade deficit widened to $78.2 billion in November, driven by import surges ahead of tariffs. China trade talks stalled, per Commerce updates. EU steel quotas extended, protecting domestic producers.