US GDP grew at 2.9% pace in fourth quarter as economy cools
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The U.S. economy ended 2022 on solid footing, but momentum seems to have cooled slightly as consumers confront the dual threat of stubbornly high inflation and rising interest rates.
Gross domestic product, the broadest measure of goods and services produced across the economy, grew by 2.9% on an annualized basis in the three-month period from October through December, the Commerce Department said in its first reading of the data on Thursday. Refinitiv economists expected the report to show the economy had expanded by 2.6%.
It marked a decline from the 3.2% pace recorded in the third quarter.
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Consumer spending – which accounts for about two-thirds of GDP – remained solid in the fourth quarter: It rose 2.1% for the period, a slight drop from the previous pace of 2.3%. Increases in private inventory investments, government spending and non-residential fixed income also helped to boost the GDP numbers.
Despite the surprising show of resilience, there are growing signs the economy is beginning to slow. Job growth is moderating, the housing market – which is vulnerable to higher interest rates – entered a recession last year and consumer spending has shown signs of cooling off.
Economists widely expect the economy to slide into a recession sometime this year as a result of the Federal Reserve's aggressive interest rate hike campaign. Policymakers raised its benchmark borrowing seven times in 2022 to a range of 4.25% to 4.5%, the highest since the 2008 financial crisis. Officials signaled that further rate hikes are coming this year, despite signs that inflation has peaked.
Hiking interest rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending.
Bank of America, Goldman Sachs and Deutsche Bank are among the major Wall Street firms forecasting a downturn next year, although they remain uncertain about its severity.
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"The economy is not yet finished absorbing the body blow to the economy caused by the bulk of the supersized rate hikes that the Fed imposed during the second half of the year," said RSM chief economist Joe Brusuelas. "Despite the resilient close to a difficult year in growth, we just do not see such a happy ending to a turbulent era of American economic growth."
This is a developing story. Please check back for updates.
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