The U.S. economy accelerated strongly to 4.9% in the last quarter as consumers shrugged off the Federal Reserve’s interest rate hikes.
This is a breaking news update. Previous guidance is below.
The government on Thursday is expected to report strong growth in the U.S. economy in the July-September quarter, underscoring the durability of consumer and business spending. Despite the efforts of the Federal Reserve Use high interest rates to cool expansion.
However, last quarter’s strong growth may prove to be a high-water mark for the economy before a steady slowdown begins in the current October-December quarter and continues into 2024.
The Biden administration is sure to use Thursday’s report as evidence that its policies have helped spur solid growth. Although the survey shows Most Americans are dissatisfied with the president’s handling of the economy.
U.S. Commerce Department data are expected to show U.S. gross domestic product, or the economy’s total output of goods and services, will grow at an annual rate of 3.8% in the third quarter, according to a FactSet survey of economists. If accurate, that would be the fastest quarterly growth in nearly two years and a sharp jump from the 2.1% growth rate in the April-June quarter. Some economists expect last quarter’s annual growth rate to be as high as 4.5%.
Americans may promote economic development in the following ways Increase spending, splurging on everything from cars and concert tickets to restaurant meals. Businesses have also been spending money on new factories and other buildings, and they may increase their inventory of goods to increase production.
Still, the astonishing pace of growth is expected to slow as consumers are likely to rein in spending in the final three months of the year and a sluggish housing market is weighing on the economy. This month, nearly 30 million people began paying hundreds of dollars in monthly student loan payments, potentially reducing their spending power. Those loan repayments have been suspended since the pandemic first hit three years ago.
The economy also faces other challenges, including Long-term interest rates soar Since July. The average interest rate on a 30-year mortgage is close to 8%, a 23-year high, making it impossible for more Americans to afford a home.
Fed officials acknowledged a pickup in economic growth that could undermine their efforts to combat inflation. Robust consumer spending often leads businesses – those selling physical goods and businesses such as restaurants and entertainment venues in the economy’s large services sector – to raise prices, fueling inflation.
But Fed Chairman Powell last week’s discussionexpressing that he is generally satisfied with the development of the economy: inflation has slowed to Annual interest rate 3.7% That’s from a four-decade high of 9.1% in June 2022. Meanwhile, steady growth and hiring prevented a recession. widely predicted end of last year.
If these trends persist, the Fed could achieve the much-coveted “soft landing,” in which the central bank would seek to reduce inflation to its 2% target without causing a severe recession.
At the same time, Powell acknowledged that the Fed may have to raise interest rates further if the economy is to maintain strong growth. The benchmark short-term interest rate, which affects many consumer and business loan rates, is currently around 5.4%, a 22-year high.
“Additional evidence that economic growth continues to be above trend could put further progress in inflation at risk and may require further tightening of monetary policy,” Powell said last week.
Fed officials were surprised by last week’s blowout government retail sales report, which showed spending at stores and restaurants rose much more than expected last month. Americans are spending more on necessities like gas and groceries, as well as essentials like cars and restaurant meals, something consumers would typically reduce if they worry about a weakening economy.
There are signs that consumers may continue to resist the Fed’s efforts to cool spending and the economy. Many student loan borrowers began repaying their loans before the moratorium officially ended on Oct. 1, suggesting they will be able to repay them, at least temporarily, without having to drastically cut spending in other areas.
“We believe this initial jump suggests that households are willing and able to resume these payments without the need for significant spending cuts,” JPMorgan economists wrote in a research note.
Although high mortgage rates have suppressed sales of existing homes, the vast majority of homeowners are still paying low, 30-year fixed rates, meaning their housing costs will remain low even if the Fed raises interest rates. This is in contrast to homeowners in places like the UK and Europe, who are more likely to have variable-rate mortgages.About 8 in 10 U.S. homeowners own Mortgage rates below 5%According to online brokerage Redfin.
With inflation broadly easing, the Federal Reserve is expected to keep short-term interest rates unchanged when it meets next week. Many economists increasingly expect central bank policymakers to also keep interest rates on hold when they meet in December.
Powell will hold a news conference on Wednesday to keep an eye out for any hints on the Fed’s next steps.
Svlook
