Strong U.S. Data Clashes With Rate-Cut Hopes as Fed Signals Caution

Financial markets remain caught between conflicting signals, but recent U.S. economic data and central bank messaging point clearly in one direction: expectations for a deep interest-rate cutting cycle appear increasingly out of step with reality. While global attention was briefly dominated by legal and trade developments late last week, underlying macroeconomic indicators in the United States quietly reinforced a more hawkish outlook.


A series of data releases showed resilience across key sectors of the economy, strengthening the case for keeping monetary policy tight for longer.


Durable goods orders exceeded expectations, signaling continued strength in business investment despite elevated borrowing costs. At the same time, housing data surprised to the upside, suggesting that demand remains intact even as mortgage rates hover near multi-year highs. Weekly jobless claims also came in lower than forecast, reinforcing the view that the labor market remains firm and that layoffs are not accelerating in a meaningful way.


These data points collectively challenge the narrative that the U.S. economy is weakening rapidly enough to justify aggressive rate cuts. Instead, they point to an economy that is slowing only modestly and remains far from recessionary conditions.
Central bank communications further complicate the picture for investors betting on swift policy easing.


Minutes from the most recent policy meeting revealed growing concern among several voting members about inflation risks. The tone was notably cautious, with some policymakers signaling that they are not only opposed to near-term cuts, but are increasingly alert to the possibility that policy may still not be restrictive enough.


Even as new leadership at the helm of the Federal Reserve attempts to strike a balanced tone, building consensus for meaningful rate reductions appears difficult. With inflation still running above target and economic momentum holding up better than expected, resistance within the policy committee remains strong.


That said, the outlook is not entirely one-sided. A sharp downward revision to fourth-quarter GDP growth — from a previously estimated 4.4% to just 1.4% on an annualized basis — briefly raised alarms about the economy’s underlying strength. However, markets largely shrugged off the revision, viewing it as backward-looking and less relevant to current conditions.


Instead, investors appear to be placing greater weight on forward-looking indicators and recent activity data, which continue to suggest stability rather than contraction. This helps explain why bond yields remain elevated and why expectations for early, aggressive rate cuts have steadily been pushed further into the future.


Trade uncertainty remains an important wildcard. Ongoing tariff disputes and legal challenges add volatility to market sentiment, but they have not fundamentally altered the economic backdrop. For now, these developments are seen as short-term disruptions rather than drivers of a sustained slowdown.


The broader message emerging from markets is clear: while growth may be cooling from last year’s highs, it is doing so gradually. Inflation pressures, particularly in services and wages, remain persistent enough to keep policymakers cautious. As a result, hopes for a rapid pivot toward easy monetary policy may prove premature.


Until data show a clearer and more sustained deterioration in economic conditions, expectations for a significant rate-cutting cycle are likely to remain misaligned with both economic reality and central bank intent.