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Update for Week 50 of 2025

Date: December 12, 2025 The global economy continues to navigate a complex landscape, characterized by moderating inflation, a resilient labor market in the US, and uncertainty surrounding future growth prospects. This week’s data paints a picture of an economy at a crossroads, where the forces of disinflation are battling against the lingering effects of supply chain disruptions and robust consumer demand. The Federal Reserve’s monetary policy remains a key factor, as markets attempt to decipher the central bank’s next move amid conflicting signals. The housing market is showing signs of stabilization, but affordability remains a major concern. Overall, the week suggests a delicate balancing act as policymakers strive to achieve a soft landing.

1. Inflation

Inflation continues its downward trend, albeit at a slower pace than earlier in the year. The disinflationary forces are primarily driven by easing supply chain bottlenecks and a moderation in energy prices. However, persistent wage growth and strong consumer demand are providing some upward pressure, preventing a more rapid decline. The stickiness of core inflation, particularly in services, remains a concern for policymakers.

  • Headline CPI/PCE: Headline CPI rose 0.2% in November, bringing the year-over-year increase to 3.1%. Core PCE, excluding food and energy, increased by 0.1%, resulting in a 2.8% annual increase. These figures indicate that while inflation is cooling, it remains above the Fed’s 2% target.
  • Energy Prices: Energy prices have been volatile, with a slight decrease this week due to increased oil production from OPEC+ nations. However, geopolitical tensions in the Middle East continue to pose an upside risk.
  • Food Prices: Food price inflation remains relatively subdued, reflecting improvements in agricultural supply chains. However, extreme weather events could potentially disrupt food production and lead to future price increases. Quote: “We are committed to achieving our 2% inflation goal, and we will use our tools to ensure that inflation returns to target over time.” - Jerome Powell, Monetary Policy Speech, Federal Reserve, December 11, 2025

2. Employment

The US labor market continues to exhibit surprising resilience, defying expectations of a significant slowdown. The unemployment rate remains near historic lows, and job growth, while moderating, is still positive. However, there are signs of a slight easing in labor market tightness, with a gradual increase in the labor force participation rate.

  • Unemployment Rate: The unemployment rate held steady at 3.7% in November, indicating a tight labor market.
  • Job Openings (JOLTS): JOLTS data showed a slight decrease in job openings, suggesting a gradual cooling of labor demand.
  • Wage Growth: Wage growth remains elevated, with average hourly earnings increasing by 4.2% year-over-year. While this is a moderation from earlier peaks, it is still above pre-pandemic levels and contributing to inflationary pressures. Quote: “The labor market remains strong, but we are seeing some signs of moderation in wage growth and job openings.” - Lisa Cook, Economic Outlook, Federal Reserve, December 9, 2025

3. Housing Market

The housing market is showing signs of stabilization after a period of significant correction. Mortgage rates have declined slightly, providing some relief to potential homebuyers. However, affordability remains a major challenge due to high home prices and limited inventory.

  • Mortgage Rates: The average 30-year fixed mortgage rate decreased to 6.8% this week, down from a recent high of 7.5%.
  • Home Sales: Existing home sales increased slightly in November, but remain below year-ago levels.
  • Construction/Starts: Housing starts edged up in November, indicating a modest improvement in residential construction activity. Quote: “While mortgage rates have come down, affordability remains a significant hurdle for many prospective homebuyers.” - Lawrence Yun, Housing Market Analysis, National Association of Realtors, December 10, 2025

4. GDP & Economic Growth

Economic growth is expected to moderate in the coming quarters, as the effects of tighter monetary policy begin to be felt more fully. Consumer spending remains a key driver of growth, but there are signs that it is slowing. Business investment is also being impacted by higher interest rates and increased uncertainty.

  • GDP Estimates: The latest estimate for Q4 GDP growth is 2.0%, down from 2.5% in Q3.
  • Manufacturing/Services PMIs: The manufacturing PMI remains in contraction territory, while the services PMI is still in expansion, but at a slower pace.
  • Consumer Confidence: Consumer confidence edged down slightly in December, reflecting concerns about the economic outlook. Quote: “We expect economic growth to moderate in the coming quarters as the effects of tighter monetary policy work their way through the economy.” - David Wilcox, Economic Forecast, Peterson Institute for International Economics, December 8, 2025

5. Monetary Policy

The Federal Reserve is closely monitoring the economic data and attempting to strike a balance between controlling inflation and avoiding a recession. Market expectations are divided, with some anticipating further rate hikes and others predicting a pause or even rate cuts in the coming months.

  • Interest Rates: The federal funds rate remains in a target range of 5.25%-5.50%.
  • Fed Speak/Guidance: Fed officials have expressed a range of views, with some emphasizing the need to remain vigilant on inflation and others highlighting the risks to economic growth.
  • Market Expectations: Market expectations for future rate hikes have decreased slightly, reflecting the recent moderation in inflation data. Quote: “We will remain data-dependent and adjust our monetary policy as appropriate to achieve our goals of price stability and maximum employment.” - John Williams, Economic Outlook, Federal Reserve Bank of New York, December 11, 2025

Conclusion

The global economy is at a critical juncture, with moderating inflation, a resilient labor market, and uncertainty surrounding future growth prospects. The Federal Reserve’s monetary policy decisions will be crucial in determining the path forward. While the risk of a recession remains, the economy has shown surprising resilience. In the coming weeks, attention will be focused on incoming inflation data, labor market reports, and signals from the Federal Reserve. Navigating this complex environment will require careful analysis and a willingness to adapt to changing conditions.