Monthly Economic Insights

Economy steady but shifting: Resilient spending, a cooling labor market, and a patient Fed

The U.S. economy continues to operate in a mixed but mostly stable environment. Though consumer spending remains resilient, labor continues to soften with layoffs continuing, job openings trending down, and hiring plans being trimmed. 

Against this backdrop, the Federal Reserve has emphasized patience, and the chances for a rate cut at the Fed’s next meeting in December have gone to less than 50%. 

After September and October’s initial rate cuts, policymakers signaled they were not in a hurry to ease more aggressively. Now that inflation data is delayed by the shutdown, empirical evidence will not be available immediately.

The Fed is likely watching the labor market more closely than inflation. Over the last several months, wage growth has cooled, and the pace of hiring is slowing. This shift reduces inflationary pressure, but it also reinforces the Fed’s caution. Policymakers say they want more evidence that inflation is sustainably returning to 2% before cutting again. Markets currently expect one additional 25-basis-point cut by early spring.

Latest reported figures show inflation is no longer accelerating, but it isn’t falling either. Shelter costs remain the biggest hurdle to the Fed’s 2% goal. Private housing data suggests easing ahead, but those improvements take months to appear in official inflation reports. 

Households are still spending, but more selectively, especially on food. More purchases are shifting toward essentials and value categories, particularly in quick-service restaurants and fast-casual. More people, especially in the 25-35 year age bracket, are pinching pennies and foregoing the $15-$20 food bowls made famous by market chains Cava, Chipotle, and Sweetgreen.

Bottom Line: The U.S. economy remains steady, but momentum is shifting. Consumers are still spending, but more cautiously. And inflation is easing, yet not quickly enough to give the Fed complete confidence.
The challenge for businesses and individuals is to stay flexible. As inflation, employment, and monetary policy change over the coming months, being ready to adjust will matter more than predicting the exact timing of the next rate cut.

— Marcus Scott, CFA, CFP^®, Chief Investment Officer (CIO) for Country Club Trust Company, a division of FNBO.

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