There is no doubt that my 5% growth prediction on Fox Business recently raised some eyebrows. Fortunately, the Atlanta Fed on Thursday revised its estimated fourth-quarter GDP growth up to a 5.4% annual pace, up from 2.7% previously estimated in the wake of the October trade deficit surging to a 16-year low and big productivity increases.
As a result of the big downward revisions in the jobs report, it should keep pressure on the Fed to continue to cut key . The Labor Department reported on Friday that 50,000 were created in December, which was below economists’ consensus expectation of 73,000. The big news is that the November payroll was revised down 56,000 (from 64,000 previously reported), but the October payroll had a massive downward revision to a loss of 173,000 jobs (from -105,000 previously reported). Last September, the Labor Department warned that the payroll data between April 2024 through March 2025 would likely be revised substantially lower.
Fed Governor Stephen Miran is now calling for 150 basis points in cuts this year to boost the labor market. He pointed out that the Fed policy is restrictive and that is running at 2.3%, which provides the Fed with plenty of room to cut. It is widely anticipated that Miran may have to vacate his Fed seat when a new Fed Chairman is nominated and approved by the Senate.
President Trump is anticipated to nominate a new Fed Chairman in January who will end the Fed’s restrictive policy and be much more pro-business. If Kevin Hassett, currently the head of the Council of Economic Advisors, becomes the next Fed Chairman, we will have an economic cheerleader leading the Fed, which will be very exciting.
If deflation appears due to (1) weak housing/rental prices, (2) low crude oil prices, and (3) the deflation that we are importing from China and other weak economies around the world, the Fed is going to have to slash key interest rates 100 basis points pretty darn quick. The Fed, in its December Federal Open Market Committee (FOMC) minutes, signaled that at least one more key interest rate cut of 0.25% was likely, but any deflation news will likely cause the Fed to slash key interest rates a lot more in the upcoming months.
In summary, enjoy 5% GDP growth as the U.S. economy explodes to the upside. The stock market is now characterized by the strongest sales growth in three years, and earnings are growing at the fastest pace in four years. Finally, the Fed will be cutting key interest rates further, and if deflation materializes, the Fed will likely pick up the pace of its key interest rate cuts. As always, fundamentally superior stocks are locked and loaded for another stunning announcement season, so I recommend that you hang on and enjoy the ride.