The U.S. economy is on track to have cooled in Q4, following a period of robust growth. Despite the expected moderation, the economy remains resilient and continues to show signs of strength in key sectors.

Economists anticipate that GDP grew 2.0% in Q4 sequentially, a moderation from the 4.9% pace in Q3. On an annual basis, GDP likely expanded by 2.6%. The official GDP report for October through December is set to be released at 8:30 a.m. ET on Thursday.

According to the Schwab Center for Financial Research, the surprising strength of Q3 GDP raised concerns about a potential rate cut in March if that momentum carried into Q4. However, the actual Q4 figures will provide more clarity on this matter.

Aside from the GDP report, the upcoming Personal Consumption Expenditures (PCE) report is also of great interest. Economists are expecting the core PCE price index to have risen by 3.0% Y/Y in December, marking the 11th consecutive month of slowing growth.

Commenting on the economic outlook, Charu Chanana, the Head of FX Strategy at Saxo, noted that both GDP and PCE data are likely to signal continuous disinflation and a resilient economy. She emphasized that core PCE remains a key focus, being the Federal Reserve’s preferred inflation gauge.

Chanana further stated, “Fed expectations have somewhat been misaligned to the rapid disinflationary forces at play, given the upside surprise in CPI and a pushback to easing expectations from Fed officials.”

It’s worth noting that consumers are showing resilience, with December retail sales surpassing expectations and consumer sentiment reaching its highest level since mid-2021.

While market sentiment leans towards the expectation of a Fed rate cut, there is a division on whether the cuts will commence in March or May.

The U.S. Economy: What Lies Ahead