Federal Reserve to inject $16 billion in liquidity into U.S. markets this week

Officials said real GDP continued expanding in 2025, though at a pace slightly below 2024. The labor market showed signs of stabilizing after gradual cooling, while consumer price inflation remained somewhat elevated.

The unemployment rate stood at 4.4% in December, unchanged from September. Average monthly payroll growth turned negative in the fourth quarter because of a sharp drop in government employment in October after workers rolled off following the deferred resignation program.

Payroll gains in November and December matched the third-quarter average. Average hourly earnings rose 3.8% over the 12 months through December, slightly below the prior year’s pace.

On prices, PCE inflation was 2.8% in November, up from 2.6% a year earlier. Core PCE, which strips out food and energy, was 2.8%, down from 3.0% the previous year.

Core services inflation eased, led by slower growth in housing services, while core goods inflation picked up, largely tied to higher tariffs. In December, CPI inflation was 2.7% and core CPI was 2.6%, both below year-earlier readings.

Staff estimates based on CPI data put December PCE inflation at 2.9% and core PCE at 3.0%. Officials also flagged data collection issues during the government shutdown that likely pushed down reported CPI and PCE levels in November and December.

Economic output posted a solid gain in the third quarter but slowed in the fourth. The shutdown was estimated to shave about 1 percentage point off fourth-quarter GDP growth.

Real private domestic final purchases, which include consumer spending and private fixed investment, grew at the same average pace as GDP over the first three quarters and slowed in the fourth, though less sharply than headline GDP.

In trade, nominal goods exports increased in October, while imports fell sharply after declining in the third quarter. The goods trade deficit narrowed further following a large widening early in 2025 when companies front-loaded imports ahead of tariff hikes.

Abroad, foreign economic activity expanded below trend in the second half of last year. U.S. tariffs weighed on manufacturing in Canada and Mexico, especially in autos, aluminum, and steel.

Some emerging Asian economies saw surging high-tech exports tied to AI demand. In China, growth was supported by stronger exports to markets outside the United States.

Inflation in many foreign economies ran near central bank targets, though food and services pressures persisted in some places. The Bank of England and the Bank of Mexico cut policy rates, most others held steady, and the Bank of Japan raised its key rate toward what it sees as neutral.

The Federal Open Market Committee voted unanimously to select the Federal Reserve Bank of New York to execute transactions for the System Open Market Account, or SOMA.

Officials also unanimously chose Roberto Perli as manager and Julie Ann Remache as deputy manager of SOMA, subject to approval from the New York Fed. A secretary’s note confirmed the bank later signed off on both selections.

Policymakers approved the FOMC Authorizations and Continuing Directives for Open Market Operations, making minor adjustments to the domestic directive so it aligns with guidance on standing repo operations issued after the December 2025 meeting.

All participants reaffirmed four key internal policies covering investment and trading rules, security of FOMC information, and external communications for both committee members and Federal Reserve staff.

The committee also completed its annual review of the Statement on Longer-Run Goals and Monetary Policy Strategy and voted unanimously to reaffirm it without changes.

In the market outlook discussion, the SOMA manager said respondents to the Open Market Desk Survey still see the economy as resilient. Forecasts for real GDP growth in 2026 were revised higher, while expectations for headline PCE inflation and the unemployment rate stayed largely unchanged.

Market pricing and survey responses both point to one to two 25 basis point rate cuts this year, with the median path in the survey indicating two 25 basis point cuts.

On the rates side, shorter-term Treasury yields were little changed, while longer-term yields rose by a few basis points, leading to a slightly steeper curve.

Near-term inflation compensation declined following softer-than-expected CPI data, lower energy prices, and less tariff pass-through than anticipated.

Forward rates suggest inflation will stabilize near current levels through the rest of the year, and model-based short-term inflation expectations edged lower with projections pointing to further modest declines.

The Treasury market continued functioning smoothly with low volatility, though the manager flagged the growing reliance on repo financing and stressed that repo market stability remains critical for orderly Treasury trading.

Stocks moved higher on Wednesday, led by tech, as investors waited for the release of the minutes from the Fed’s most recent policy meeting.

The S&P 500 climbed 0.2%, the Nasdaq Composite rose 0.2%, and the Dow Jones Industrial Average gained 86 points, also 0.2%.

Still, the upside stayed limited as oil prices jumped. Markets are reacting to fresh developments in U.S.–Iran nuclear talks. Vice President JD Vance said Tuesday that Iran failed to address U.S. red lines and warned that military action remains a possibility.

On the corporate side, Nvidia rose 2% after Meta said it will use millions of Nvidia chips in its data center buildout.

Another “Magnificent Seven” name, Amazon, climbed about 1% after filings showed Bill Ackman’s Pershing Square increased its stake in the company by 65% in the fourth quarter, making it the fund’s third-largest holding.

The move follows Amazon snapping a nine-day losing streak.

Micron Technology also advanced after David Tepper’s Appaloosa Management boosted its position in the chipmaker.

Meanwhile, Bitcoin remains stuck around $67,000, showing little reaction so far to the broader liquidity story.