Today's GDP report, at first glance, points to a year-end slowdown in growth. But that's a mirage. Under the hood, there isn't much cooling underway at all.

Why it matters: America's economy continued to chug along in the final months of 2024, with few signs of wavering demand.

• The economy is not overheating but is holding in a steady state — an outcome welcomed by economic policymakers still battling inflation with huge uncertainties ahead.
• The GDP report's details "tell a more robust story that will keep the Fed wary about easing monetary policy too far too fast," James Knightley, chief international economist at ING, wrote this morning in a note.

By the numbers: The economy expanded at a 2.3% annualized rate in the October to December period, backing off from the 3.1% pace in the third quarter.

• Economic growth last quarter was powered by stronger consumer spending, which added almost 3 percentage points to the headline figure as unemployment remains low and wages grow in real terms.
• Spending on goods was particularly strong, growing 6.6% from the previous quarter, the quickest quarterly pace since the pandemic recovery in 2021. Service sector spending rose 3.1%, compared to 2.8% in the third quarter.
• The housing sector showed signs of life after being crushed by higher interest rates: Homebuilding was a slight GDP boost after two straight quarters of pulling down growth.
• Businesses slowed spending on buildings, equipment and more, with activity dropping 2.2% last quarter after strong investment for most of 2024. The category is being closely watched for signs of AI-related spending.

The intrigue: A measure of economic activity that captures underlying growth dynamics — as opposed to one-off forces — shows the economy is keeping pace.

• Final sales to private domestic purchasers increased at a 3.2% annualized rate, just 0.2 percentage points below that in the third quarter.

Between the lines: Inventory destocking was a key factor holding back headline GDP growth.

• That is among the most volatile components of GDP, and appeared to reflect a surge in demand.

What they're saying: "The auto industry wasn't keeping up with demand on dealer lots, causing lower inventories at both retail and wholesale levels," Comerica chief economist Bill Adams said in a note, pointing to demand for EVs and replacement vehicles for those destroyed by hurricanes.

The bottom line: Fed chair Jerome Powell said yesterday that central bank officials agreed they could be patient in assessing its next move, in part because the economy is in a "good place."

• Today's data suggests that judgment was correct.

You know it's a quiet moment for Fed policy when markets are driven not by any actual policy move, but by modest wording shifts in its statement — followed by comments from Powell that tamp down the importance of that wording.

State of play: Stocks initially sold off on the Federal Open Market Committee's policy statement that said inflation "remains somewhat elevated" — in contrast to its previous statement that inflation "has made progress toward the Committee's 2 percent objective but remains somewhat elevated."

• Markets viewed that as a hawkish signal. After all, the words that were deleted amounted to reassurance that Fed officials were comfortable with the direction things were heading.
• Less reassurance inflation is coming down = higher risk that rates stay higher for longer.

The intrigue: Minutes later, asked about the wording change, Powell tamped down its importance.

• "We did a little bit of language cleanup there," Powell said. "We took out a reference to 'since earlier in the year' as it related to the labor market, and we just chose to shorten that sentence."
• Nothing to see here. Markets rallied accordingly.

Yes, but: "The Fed chooses its statement language carefully, and brevity has not been an important objective for a long time," economists at Brean Economics wrote in a note yesterday.

• "It seems unlikely to us that the removal of the reference to inflation progress was solely because the Fed 'chose to shorten that sentence,' as Powell claimed."