US economy ends 2022 with strong growth of 2.9%

GDP rose from October to December for second quarter in a row

The US economy slowed in the final quarter of 2022, but still posted consecutive periods of growth. AFP
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The US economy slowed slightly in the final quarter of 2022, although it still grew at a faster-than-expected pace amid fears that the world's largest economy is heading towards a recession this year.

The nation's gross domestic product grew at a 2.9 per cent rate from October to December, a report from the Bureau of Economic Analysis showed on Wednesday. This marks two consecutive quarters of economic growth, after 3.2 per cent growth in the previous quarter.

Overall growth for 2022 was 2.1 per cent, according to the analysis, down from 5.9 per cent in 2021.

Thursday's report defied projections from a survey of forecasters by data firm FactSet, meaning US interest rates are likely to remain high for the moment.

Some of the world's largest banks have predicted that the US is poised to enter a recession later this year, largely due to the Federal Reserve's historic interest rate increases.

The central bank raised interest rates seven times last year to the range of 4.25 and 4.50 per cent, making borrowing costs such as mortgages and car loans higher. Traders expect interest rates to be raised by 25 basis points when the Fed meets next week, according to CME's FedWatch tool.

The Fed has been engaged in a battle with rising costs in the country, which peaked at 9.1 per cent in last summer. Inflation has since dipped to 6.5 per cent, but still remains well above the Fed's long-term 2 per cent target.

Fed officials will be closely monitoring the latest personal consumption expenditures (PCE) report, to be published on Friday, before their meeting next week.

The PCE, which tracks changes in the prices of goods and services purchased by US consumers, is the Fed's preferred way of judging if its inflation-cooling measures are working.

The Fed has sought to achieve what is called a soft landing — slowing the economy without driving it into a recession. Policy officials estimate interest rates will be about 5.1 per cent by the end of the year.

One significant obstacle the Fed faces is the resiliency of the jobs market. Though layoffs are plaguing the tech sector, US employers are still adding hundreds of thousands of jobs each month.

Fed officials forecast unemployment in the US to climb to 4.6 per cent this year, in what would be a significant jump from the nation's current historically low rate of 3.5 per cent.

Another wild card that could threaten the US economy this year stems from political brinkmanship, with Republicans in the House of Representatives threatening to refuse to raise the federal debt limit unless President Joe Biden's administration agrees to their demands to cut spending.

“I'm not going to get into the reckless threats that take the economy hostage in order to force an agenda that's going to only limit American workers will weaken us internationally,” Mr Biden said in remarks from Springfield, Virginia.

The White House said Mr Biden would sit down with House Speaker Kevin McCarthy before the State of the Union on February 7. Mr Biden has maintained he would not negotiate on the debt ceiling.

The US has never defaulted on its debt.

Updated: January 26, 2023, 8:47 PM