Q4 GDP Rises 2.9% In What Should 'Reignite' Soft Landing Talks: 2 Experts Agree On The Fed's Next Move

The U.S. economy grew more than economists had predicted in the fourth quarter, a welcome sign for bullish investors. Two experts were in agreement on how the Federal Reserve will respond to Thursday's print.

What Happened: U.S. gross domestic product (GDP) increased by an estimated 2.9% from October to December, according to a Thursday release from the Bureau of Economic Analysis. The number topped economist estimates for a gain of 2.6%. 

Related Link: Q4 GDP Estimate Tops Economist Forecasts In Positive Sign For US Economy: What It Means For The Federal Reserve

Why It Matters: A second estimated fourth-quarter GDP number based on more complete data will be released on Feb. 23, but the Fed is due to make its next decision on rates before the release. 

Jeffrey Roach, chief economist for LPL Financial, expected Thursday's GDP data to "reignite conversations" about a soft landing for the economy.

"Given the softer inflation data, the Fed will likely downshift the pace of rate hikes to 0.25% at next week’s meeting," Roach said.

He noted other recession indicators are "flashing red," so he would be keeping a close eye on upcoming monthly data, especially new numbers on the strength of the labor market.

The Labor Department on Thursday reported jobless claims of 186,000 for the week ending Jan. 21, which was below average economist estimates of 205,000.

Bill Adams, chief economist for Comerica Bank, also noted jobs data, paired with other recent indicators appeared to suggest the economy was on the cusp of contracting at year's end.

However, based on the GDP print, he determined fears that a recession was underway in the first half of last year were "misplaced."

"A slowing trend in real GDP — and more importantly, slowing inflation — is enough for the Fed to reduce the size of their rate hike at next Wednesday’s decision," Adams said.

The Comerica economist also expected the Fed to opt for a less aggressive 0.25% rate hike at its upcoming meeting. A quarter-point hike next week would be down from last month's 0.5% hike, which was preceded by four straight 0.75% rate increases. He's also already anticipating a second 0.25% hike in the subsequent meeting.

"The Fed is nearing the end of its rate hike cycle, which we forecast will conclude with a final quarter percentage point increase at the March decision," Adams said.

See Also: Hike, Pause, Pivot Or Cut? 4 Experts On The Fed's Next Interest Rate Move As CPI Data Shows Inflation 'Weakening'

SPY Price Action: The SPDR S&P 500 (ARCA: SPY) is struggling to find direction following Thursday's economic data. Investors appear to be looking ahead to the upcoming FOMC meeting on Feb. 1.

The SPY was up 0.45% at $402.17 at time of publication, according to Benzinga Pro.

Photo: Joshua Woroniecki via Unsplash.