A full economic calendar this week built on last week’s payroll report in underscoring the economy’s resilience through a turbulent fourth quarter marked by the government shutdown. Geopolitical risks escalated amid violent protests in Iran and the prospect of U.S. involvement, sending the VIX index, gold, and oil prices higher mid-week—WTI briefly exceeded $60 per barrel—though prices retreated by week’s end as the threat of direct confrontation diminished. Surprisingly, Fed Chair Powell’s statement Sunday night where he spoke out on threats to the Fed’s ability to set interest rates free from political interference for the first time garnered little reaction from bond markets. 

Resilience was evident in the retail sales report, as consumers appeared to have largely shrugged off the effects of the government shutdown. Headline sales rebounded by in November after a flat October, while sales in the control group—used in GDP calculations— were up 1% through the first two months of the quarter. This suggests Q4 2025 consumer spending growth was likely stronger than our earlier 1.1% (annualized) estimate. Next week’s personal income and spending data will provide more detail on households’ November income and spending, especially on services.

The housing market also finished last year on a firmer footing, with lower mortgage rates drawing more homebuyers off the sidelines (Chart 1). Existing home sales have now risen for four consecutive months, surging 5.1% in December to 4.35 million units—the highest since early 2023. We believe sales will continue to trend gradually higher this year; however, unless addressed, limited supply will continue to impede a stronger rebound.

Inflationary pressures remained steady in December. The headline CPI was up 2.7% year-over-year, maintaining its deceleration from the recent high of 3.0% in September. Core goods prices were stable after five consecutive monthly increases (Chart 2). Food prices were somewhat elevated, rising 0.7% month-over-month (up 3.1% year-over-year), remaining a pressure point in households’ budgets.

Although inflation steadied in December, we still expect knock-on effects from tariffs to push it higher in the coming months. FOMC member Williams (voter) expects inflation to “peak at around 2-3/4 to 3 percent during the first half of this year,” but anticipates these will be “one-off” effects. Aside from tariffs, Williams noted that underlying inflation trends have been favourable, supply chain bottlenecks are absent, and the labour market is cooling gradually.

The latest Beige Book also reported both inflation and the labour market as broadly stable, with increased economic activity  following the shutdown, and more Fed Districts seeing growth. Overall, recent data gives policymakers more reassurance that the economy stabilized at year-end while price pressures remained contained. This supports a “pause” on rate cuts for a few months, when tariff impacts are more clearly in the rear-view mirror.