Gross Domestic Product came in a little above average for the last three months of 2006, registering a 3.5% increase. For the year, GDP rose 3.4% in 2006 versus 3.2% in 2005. Nonresidential investment was flat, but strong consumption lead the way (and with a 1.5% inflation estimate, it appears to be sustainable.) Inventories are down. The housing shortfall is quite apparent in the data, but the fall in oil prices contributed to a marked improvement in net exports.

The trade and housing parts of this should not come as a surprise. The most important number, to me, is the PCE inflation is below 2%; this is likely to keep the Fed from reacting to consumer spending in any way. Interest rates should hold steady.

UPDATE: ... and so far, they have.

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market. Overall, the economy seems likely to expand at a moderate pace over coming quarters.

Readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time. However, the high level of resource utilization has the potential to sustain inflation pressures.

The Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

It's worth remembering that this month the membership of the FOMC changed with new Fed presidents replacing old ones (four seats rotate annually.) The Richmond Fed president Jeffrey Lacker has rotated off the committee; he had voted to tighten interest rates at the last few meetings.