U.S. Growth Picks Up as Fed Heads Into Leadership Change

The U.S. economy showed signs of stronger momentum this week after the Dallas Fed’s Weekly Economic Index rose to 3.0% from 2.5% and manufacturing purchasing managers’ indexes indicated a pickup in factory activity.

The Dallas Fed WEI, a real-time, GDP-equivalent signal built from high-frequency indicators, recorded the increase from last week’s reading. The index provides a near-term view of economic momentum compared with official GDP data.

Manufacturing PMIs pointed to higher activity tied to corporate investment in artificial-intelligence infrastructure and reshoring of some production. Firms increased spending on data centers, servers and networking equipment, lifting factory orders and demand for skilled labor.

Markets are also watching geopolitical risks in the Persian Gulf. Threats to oil shipments through the Strait of Hormuz could tighten global energy supplies and push fuel prices higher, which would add upward pressure to inflation readings.

The Federal Reserve is moving through a leadership transition away from Chair Jerome Powell. Powell became chair in early 2018, a period when the Fed was raising rates after years of accommodative policy.

Inflation risks and a larger role for fiscal policy distinguish the current environment from that earlier period. The federal budget deficit remains elevated, and fiscal developments are a factor for policymakers weighing monetary choices.

Economists expect short-term interest rates to stay rangebound while officials consider stronger growth, tight labor market conditions and potential energy shocks. Policymakers will monitor oil flows through strategic choke points and fiscal trends for signals that could affect inflation and growth.