The U.S. economy is barreling ahead — but there’s one big problem

The largest part of the U.S. economy expanded at a rapid pace in the run-up to the holiday shopping season, according to the latest data. That strength is significant because consumer spending accounts for roughly two-thirds of economic activity, making it the main engine of U.S. growth. A brisk pace heading into the year's biggest shopping period suggests households were still spending with conviction.

Yet business leaders were not in a festive mood, with stubborn inflation weighing on sentiment. Persistent price pressures matter for markets because they shape expectations around interest rates: if inflation proves slow to cool, the case for rate cuts weakens, which can influence borrowing costs, equity valuations and the dollar.

What to watch next is whether spending momentum holds once the holiday season ends, and whether inflation readings show meaningful progress toward the Federal Reserve's target. The tension between resilient demand and sticky prices is likely to remain the central narrative for investors in the months ahead.