Hello, my friends!
Perhaps the biggest economic story of this week was the widely anticipated decision by the Federal Reserve to leave interest rates untouched at the conclusion of its first two-day policy meeting in 2026.
On Wednesday, the Federal Open Market Committee (FOMC)…the central bank’s policymaking arm…voted by a margin of 10-2 to keep the benchmark federal funds rate at the target range of 3.5% to 3.75%. Governors Stephen Miran and Christopher Waller – both Trump appointees – were the dissenters, with each advocating for another quarter-point cut.
Most of the committee members felt that a pause was in order this month, however, believing that concerns about persistent inflation now outweigh worries about possible weakness in the labor market. It was the first time in four meetings the FOMC decided to stand fast on rates.
“Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has shown some signs of stabilization,” the post-meeting statement explained. “Inflation remains somewhat elevated.”
Notably, neither the statement nor any comments made by Fed Chair Jerome Powell at his summary press conference seemed to shed any light on what the committee has in mind for monetary policy going forward. For their part, traders don’t expect to see another rate reduction before June and currently project just two rate cuts, in total, between now and the end of 2026.
Aircraft Orders Spark Big Rebound in November Durable Goods Number
Elsewhere this week, the Census Bureau reported on Monday that orders for durable goods made a sharp turnaround in November, jumping 5.3% after sinking 2.1% in October. The November number is considerably better than the 3% rise projected by economists and the best result of the past six months.
The big improvement was sparked by a whopping 98% increase for the month in civilian aircraft orders, with transportation orders, overall, rising by nearly 15%.
Notably, durable goods orders climbed in November even without the tailwind provided by the general transportation and aircraft sectors. Core durable goods, which strip out the often-volatile transportation sector to get a clearer look at underlying business activity, rose 0.5% after increasing 0.1% in October. And as for non-defense capital goods ex-aircraft, those increased 0.7%.
Some observers attribute the robust numbers to diminishing concern about tariff impacts, with Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, suggesting:
“While uncertainty is far from eliminated, executives appear to have reached the point where they have enough information to move forward.”
Business Activity in Texas Sees Improvement This Month
Also on Monday, the Federal Reserve Bank of Dallas announced that the index derived from its Texas Manufacturing Outlook Survey jumped 10 points in January, suggesting business activity is on the upswing in the Lone Star state.
According to the Dallas Fed, the survey’s index for general business activity soared to -1.2 this month from -11.3 in December. And while readings even slightly below zero still technically imply contraction in the manufacturing sector, several key component measures surged into expansion territory in January, raising the possibility that a move there by the overall index may be just around the corner.
The Production Index, for example, jumped to 11.2 this month from -3.0 while the New Orders Index climbed to 11.8 from its December reading of -6.6. Also, the Capacity Utilization Index rose to 7.1 after coming in at -4.6 last month. The Shipments Index rebounded especially sharply, leaping to 12.0 after measuring -10.5 in December.
As for the comments from survey respondents, some of the most upbeat came from machinery manufacturers, with one gushing:
“Business is booming and for that we are pleased. We are buying new equipment to increase production, since we are falling behind on our inventory requirements, and sales have increased significantly.”
Key Consumer Sentiment Metric Falls for Sixth Month in a Row
Finally, The Conference Board reported on Tuesday that its widely followed Consumer Confidence Index declined for the sixth straight month in January, tumbling an eye-opening 9.7 points to land at 84.5. Heading into the week, economists expected to see the index come in at a more buoyant reading of 90.
Of particular note – and concern, perhaps – is that January’s number is the lowest in more than 11 years…which means, of course, it’s now lower than any of the levels seen at any time during the pandemic.
Unsurprisingly, the overall index’s two principal component metrics, the Present Situation Index and Expectations Index, each fell precipitously this month. The Present Situations Index tanked 9.9 points to land at 113.7 and the Expectations Index, which gauges consumers’ outlook for the economy six months down the road, fell 9.5 points to 65.1. Notably, January marks the 12th consecutive month the Expectations Index has come in below 80, territory the board says signals forthcoming recession.
That’s all for now; have a wonderful weekend!
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