The U.S. economy defies interest rate hikes with solid growth and declining inflation.

The U.S. economy recorded robust growth of 2.8 percent in the third quarter of 2024. This growth was supported by steady consumer spending and a significant increase in government expenditure, despite the rise in interest rates. Consumers were willing to spend, increasing their expenditures by 3.7 percent on essential goods such as healthcare, dining out, and automobiles. Notably, defense spending contributed to the economic momentum and offset the impact of rising imports. In terms of inflation, there is reason for relief for the Fed. The personal consumption expenditures price index, a critical measure of inflation, rose by only a moderate 1.5 percent, well below the Fed's target of 2 percent. The core PCE index, excluding food and energy, also shows a declining trend at 2.2 percent. This provides the Fed with room to consider interest rate cuts at its next meeting and strengthens the expectation of supportive monetary policy into 2025. As markets react to the mixed economic data, investors remain cautious. The S&P 500 and Dow recorded slight losses, while the Nasdaq managed a small gain, indicating optimistic expectations regarding further Fed support. However, the situation remains tense with the upcoming labor market report on Friday. Strong employment figures could jeopardize the Fed's planned easing, bringing new volatility and potentially dampening current optimism regarding the resilience of the U.S. economy in 2024.