US economic growth slowed less than expected in the final quarter of 2022, even as the Federal Reserve’s aggressive campaign to raise borrowing costs began to weigh more heavily on business activity.

The world’s largest economy expanded 2.9 per cent on an annualised basis between September and December, according to data published by the commerce department on Thursday, slightly higher than economists’ forecasts of a 2.6 per cent increase. That marked a slowdown from 3.2 per cent growth in the third quarter, reflecting the steps the US central bank has taken so far to damp demand.

Since March, the Fed has raised its policy rate by more than 4 percentage points, repeatedly moving in 0.75 percentage point increments in a bid to catch up to inflation that proved far more intense than expected.

The Fed is now preparing to deliver a quarter-point rate rise, from the current range of 4.25 per cent to 4.5 per cent, at its meeting next week as it determines how much more to unleash on the economy now inflation appears to have peaked. Officials broadly back the federal funds rate hitting 5 per cent, and for that level to be maintained at least to the end of the year, suggesting further rate rises to come beyond the February decision.

The GDP data is the latest sign that the economy has proven more resilient than expected in the face of substantially higher borrowing costs, while also showing that the Fed’s actions are beginning to have a more notable effect.

Companies across the manufacturing and services sectors have already begun to cut costs, pulling back on new hiring plans and slashing hours for workers. Mass lay-offs have also swept through the technology sector. That has been accompanied by flagging consumer spending, which has helped to ease price pressures.

Many economists expect the US to tip into a recession later this year as the unemployment rate rises from its current 3.5 per cent level to closer to 5 per cent. But no Fed official has yet forecast a recession, maintaining instead that a “soft landing” can still be achieved.

The official arbiters of a recession, a group of economists at the National Bureau of Economic Research, characterise one as a “significant decline in economic activity that is spread across the economy and lasts more than a few months”. They typically look at a range of metrics including monthly jobs growth, consumer spending on goods and services, and industrial production.

A debate kicked off last year as to whether the US economy was already in a recession, after registering two consecutive quarters of shrinking GDP in the first half of 2022. That has long been considered the common criteria for a “technical recession”. However at the time, top policymakers in the Biden administration and at the Federal Reserve said there was overwhelming evidence the US economy was strong.

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