The Fed Can Hit Pause: Red-Hot GDP Pushes Rate-Cut Hopes to April—but Stocks Don’t Care

The latest batch of U.S. economic data effectively closes the book on meaningful macro releases for the year, with only the Federal Reserve’s December 30 minutes still ahead—and those are both dated and backward-looking. While much of today’s data is also backward-looking, particularly the third-quarter GDP figures, it nonetheless reinforces a central theme that markets have been grappling with for weeks: the U.S. economy is still performing from a position of strength. That reality may delay the timing of the first Federal Reserve rate cut, but it does not undermine the broader bull case for equities.

At the headline level, third-quarter GDP surprised to the upside, printing at a 4.3% annualized pace versus expectations closer to 3.3%. Final sales rose 4.6%, while consumer spending increased 3.5%, underscoring that demand remained robust through the end of the summer. While these figures are backward-looking, they confirm that the economy entered the fourth quarter with meaningful momentum rather than fragility. That matters because it directly challenges the notion that the Federal Reserve needs to rush toward easing in response to economic weakness.

The inflation components of the GDP report were less comforting, though not alarming. The GDP deflator rose 3.7%, well above expectations near 2.7%, signaling firmer price pressures embedded in overall growth. By contrast, the PCE price index and core PCE were both in line with expectations at 2.8% and 2.9%, respectively. In other words, inflation is not collapsing—but neither is it reaccelerating in a way that forces the Fed’s hand. The net effect is to keep policymakers cautious and reinforce a “higher for longer, but not restrictive forever” posture.

Durable goods data added nuance to the picture. Headline orders fell 2.2% in October, worse than the expected 1.5% decline, but this weakness was almost entirely driven by transportation equipment. Non-defense aircraft and parts orders plunged more than 30%, reflecting the volatility inherent in that category rather than a broad-based slowdown in demand. Boeing, for example, reported just 15 aircraft orders in October compared to 96 in September. Strip out transportation, and orders actually rose 0.2%. More importantly for the growth outlook, non-defense capital goods orders excluding aircraft—a key proxy for business investment—increased 0.5%, slightly above consensus, while shipments rose a solid 0.7%. Those internals suggest that corporate capital spending, particularly in technology- and AI-related areas, remains intact.

Industrial production further supported the “steady, not stalling” narrative. Output rose 0.2% in November after a 0.1% increase in October. Manufacturing was flat, but gains in mining and utilities lifted the overall index. On a year-over-year basis, industrial production is up 2.5%, with manufacturing output nearly 2% higher. Capacity utilization remains below long-run averages, signaling that the economy is not overheating even as growth remains resilient.

Consumer confidence, meanwhile, offered an important forward-looking check on the strength implied by the hard data. While confidence readings can be volatile month to month, the broader takeaway is that sentiment has stabilized rather than deteriorated meaningfully. Consumers appear cautious but not alarmed, consistent with an environment in which labor markets remain firm and wage growth continues to offset higher prices for many households. That matters for markets because consumer confidence acts as a bridge between backward-looking GDP data and forward-looking spending behavior. There is little in the latest readings to suggest an imminent retrenchment in consumption.

Taken together, the data has meaningful implications for Federal Reserve policy expectations. Historically, the Fed has rarely acted unless markets assign roughly a 60% probability or higher to a policy move. According to aggregated CME FedWatch data, the probability threshold for the next rate cut is no longer met for the March meeting. Instead, expectations have shifted decisively toward the April 29 meeting, where probabilities now clear that 60% bar. The March-versus-April debate is still alive, but today’s data tilts the balance toward patience rather than urgency.

Markets initially reacted in predictable fashion. Treasury yields moved higher following the strong GDP print and firmer inflation signals, pressuring equities in early trading. That move, however, proved fleeting. As the session progressed, investors reframed the data not as a threat but as confirmation that the economy does not require emergency easing. Yields eased back, and equities quickly recovered their losses. This pattern highlights an important shift in market psychology: strength in economic data is no longer reflexively bearish for stocks.

The broader backdrop remains supportive. The Treasury curve continues to bull-steepen, driven primarily by expectations for eventual easing rather than fears of runaway inflation. Liquidity conditions are gradually improving, and short-term yields have been under pressure as markets look ahead to 2026. In that context, a delay in the first rate cut does not equate to tighter financial conditions—especially when the delay is driven by economic resilience rather than policy restraint.

Ultimately, the key takeaway is straightforward. Rate cuts driven by economic distress are not bullish. Rate cuts delayed because the economy is strong are not a problem. Today’s data reinforces the latter scenario. The idea that the Fed must cut rates because the economy is weakening should not supersede the more constructive reality that growth remains healthy. For equity investors, that is a preferable backdrop. While the timing of the first cut may slide from March to late April, the underlying message is one of durability, not deterioration—and that remains a net positive for markets heading into year-end.