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The mixed messages on the state of the U.S. economy will continue until morale improves. Or, gets worse. TBD.

Thursday’s GDP report showed that the economy grew faster than many had anticipated during the fourth quarter even as consumers and businesses began to cut spending in anticipation of a potential downturn. This morning, all eyes turn to the Federal Reserve’s preferred inflation gauge — the personal consumption expenditure index — to get a firmer sense of how the surging economy has affected prices.

If inflation comes in stronger than expected, that means the Fed will face pressure to raise rates by another half a percentage point at next week’s Federal Open Market Committee meeting; pumping even more anxiety into markets that have been bracing for a recession since last year.

If it continues to cool down, Jerome Powell & Co. will be forced to tango once again with optimistic market forces that are prematurely celebrating inflation’s demise. (The consensus forecast is that prices climbed by 5 percent year-over-year in December, more than double the Fed’s 2 percent target rate).

“The Fed is going to have a rather difficult task,” EY Parthenon Chief Economist Gregory Daco told MM on Thursday. “We are in an environment where there is a desire to maintain a very tight monetary policy stance, but markets are pricing rate cuts at the end of this year. They're also not pricing in the type of tightening that the Fed has communicated it would like to do.”

It was only a few weeks ago that Powell sounded pessimistic about the state of the central bank’s war against inflation, which suggested the central bank would once again drive up rates by half a percentage point. At the time, the rate-setting committee said it expected to close out 2023 with inflation still slightly above 3 percent — which wouldn’t lend itself to rate cuts.

A lot’s changed since then. Hiring and wage growth has started to slow, which should relieve pressure on service sector businesses that have had to devote more resources to payroll in order to attract and retain workers. Businesses are also stocking less inventory and spending less on capital expenditures. Fed officials are now signaling that a quarter-point increase will give them more flexibility to assess the impact of last year’s blistering series of hikes.

The latest data suggests a “broadening of the slowdown and further signs of decelerating price pressures,” BofA Global Research wrote in a report on Thursday. That has “tipped the balance within the FOMC toward another downshift in the pace of rate hikes next week.”

In other words,things aren’t quite as scary as they were barely a month ago.

Case in point: McKinsey & Co’s latest report on wealth managers space projected “choppy waters” ahead. However, in the weeks between when the report was compiled and when it was published on Jan. 25, some of the economic risks that had factored into the consulting firm’s outlook — particularly as it relates to China — no longer pose as much of a threat, Senior Partner Jill Zucker told MM on Thursday.

“There's more optimism, it feels like, than when we were writing this in December,” Zucker said. “Now, we don't have a crystal ball — who knows? — but the sentiment [from our perspective] appears to have changed.”

IT’S FRIDAY — You made it. Your MM host is hoping the San Francisco 49ers make it to Monday. If you have thoughts, tips or Brock Purdy takes, you can reach Sam at [email protected] and Zach Warmbrodt at [email protected]. You can also find us on Twitter @samjsutton and @zachary.

The PCE price index for December will be released at 8:30 a.m. … University of Michigan consumer sentiment and inflation expectation surveys will be released at 10 a.m. … White House CEA member Heather Boushey will participate in a virtual roundtable hosted by The Hill at 2 p.m.

DEBT CEILING — WaPo’s Tony Romm: “President Biden sharply rebuked House Republicans on Thursday for trying to slash seniors’ retirement benefits and hold hostage the nation’s finances, stressing that the new majority’s agenda — and its staunch demands for spending cuts — threatened to plunge the United States into an economic crisis.”

First in MM: Meet McHenry’s Financial Services team — Zach reports that House Financial Services Chair Patrick McHenry will announce his committee staff today. They include:

— Staff director Matthew Hoffmann

— Chief counsel and policy director Kimberly Betz

— Director of operations Lindsey Shackelford

— Communications director Laura Peavey

— Director of member services and coalitions Larry Seyfried

— Chief oversight counsel Rachel Kaldahl

— Capital markets subcommittee staff director Will Anderson, digital assets staff director Allison Behuniak, financial institutions staff director Jeff Wrase, housing and insurance staff director Ed Skala and national security staff director Nels Nordquist

MORE MCHENRY — Our Eleanor Mueller got details on Republican subcommittee assignments.

— Also from Eleanor: Senate Majority Leader Chuck Schumer on Thursday said that Sen. John Fetterman will sit on the Senate Banking Committee this Congress. The newly elected Pennsylvania Democrat, whose win was key to helping Democrats keep the Senate, is his party’s only new addition to the panel. He will also serve on the Joint Economic Committee, among others.

“On the Banking Committee, I am going to protect consumers and take on corporate greed,”Fetterman said in a statement.

PREDICTIT LIVES ON — Our Declan Harty: America’s favorite election betting market no longer needs to wind down in less than two weeks. Instead, PredictIt, the political prediction market used by 80,000 people across Washington and Wall Street, can stay open as its lawsuit against the CFTC plays out, the Fifth Circuit Court of Appeals said Thursday.

BUYBACK BLOWBACK — Our Brian Faler: “Less than a month after Democrats’ new tax on stock buybacks kicked in, a major oil company announced a huge stock buyback plan — and the Senate’s top tax writer is threatening to retaliate.”

THERE WILL BE CRUDE — WSJ’s Dan DeLorenzo and David Uberti: “Russia’s war on Ukraine has redrawn the global oil map, rerouting a fleet of skyscraper-size tankers on longer voyages as they shuttle crude shipments that are essential to the global economy.”

HERE COME THE D&O INSURANCE PREMIUMS — Reuters’s Tom Hals: “Shareholders can sue McDonald Corp's (MCD.N) former global chief people officer for the damage they claim he caused to the restaurant chain by allegedly allowing a culture of sexual harassment to flourish, according to a groundbreaking legal ruling.”

WAIT, THE TOP SAID THINGS WERE OK? — WSJ’s Chip Cutter and Theo Francis: “This week, four companies trimmed more than 10,000 jobs, just a fraction of their total workforces. Still, the decisions mark a shift in sentiment inside executive suites, where many leaders have been holding on to workers after struggling to hire and retain them in recent years when the pandemic disrupted workplaces.”

WHO WATCHES THE CRYPTO WATCHMEN? — From Sam: “Sens. Elizabeth Warren (D-Mass.) and Ron Wyden (D-Ore.) are urging the Public Company Accounting Oversight Board to probe firms that provided a clean bill of health to troubled crypto businesses. Warren and Wyden want the U.S.’ top accounting watchdog to utilize its authority to stamp out reviews of lightly regulated digital asset businesses that might give consumers false confidence in their financial well-being.”

“What they’re suggestingin the letter would be beyond the PCAOB’s authority,” former Acting PCAOB Chair Dan Goelzer told Sam. “I think investors may not understand these [crypto] proof-of-reserve reports or how they differ for audits — and there are certainly questions about auditing firms’ work for crypto companies — but that’s beyond the PCAOB’s authority. If members of congress want to change that, they need to change the law.”

MORE ON 1033 — The comment pile-on for the CFPB’s rulemaking: Consumer Reports is calling for the agency to extend any rules on data providers to Buy Now, Pay Later firms and Earned Wage Access programs. It’s also calling for rules that would make it easier for consumers to revoke access to their financial information and only permit secondary usage of that data on an opt-in basis.

Plaid, a major fintech and financial data aggregator, is urging the CFPB to prevent banks and other financial institutions from “improperly persuad[ing] consumers not to share their data through materials and communications suggesting data sharing is inherently risky.”

The FDIC has tapped Ryan Billingsley as its new deputy director of capital markets and accounting policy, replacing longtime FDIC official Bobby Bean. Lisa Arquette has been named deputy director of operational risk, taking over for Martin Henning — a 32-year veteran of the agency. Both Bean and Henning will retire later this year.

Jason Holley is joining Impact Partners as a director to oversee private equity, venture capital, venture debt and tech clients. The former Cathy McMorris Rodgers (R-Wash.) staffer previously worked at Jack Taylor PR.

Stephen Newton has joined the government relations firm Porterfield, Fettig & Sears as a vice president. He previously worked as a senior policy staffer for Sen. Mitt Romney (R-Utah) and Sen. John Kennedy (R-La.).

John Monsif has joined Visa as VP and head of federal government engagement. He most recently was director for U.S. federal government relations at Carrier and is an alum of John Delaney and Louise Slaughter. — Daniel Lippman

HOW CRYPTO AFFECTS TRADFI — ISDA on Thursday released standardized definitions for crypto contracts as the FTX bankruptcy continues to ripple through the crypto market. The industry organization published a white paper unpacking the legal questions derivatives platforms might encounter in future downturns.

“What are the rules? Can they be coded in the underlying body of the distributed network? What can trade purely on code, or is there a rule book underwriting certain default options if things go wrong?” ISDA CEO Scott O’Malia told Sam. “You have to bring all that together in a way that’s predictable so the outcomes are understood in case of something going wrong.”

AGENDA — TheWhite House Office of Science and Technology Policy is seeking public comment on the development of a research and development agenda for digital assets, according to the Federal Register. The new agenda, which follows the mountain of reports on crypto policy issues produced through Biden’s executive order on crypto, will prioritize tech relating to blockchain, distributed ledgers, decentralized finance, smart contracts, and related issues such as cybersecurity and privacy.