GDP: US economy grows at fastest pace in nearly two years


The US economy grew at its fastest pace in nearly two years during the past three months, once again defying predictions for a slowdown as many expected the Federal Reserve's monetary tightening to constrain the American consumer.

The Bureau of Economic Analysis's advance estimate of third quarter US gross domestic product (GDP) showed the economy grew at an annualized pace of 4.9% during the period, faster than consensus forecasts. Economists surveyed by Bloomberg estimated the US economy grew at an annualized pace of 4.5% during the period.


The reading came in higher than second quarter GDP, which was revised down to 2.1%.


The GDP release highlights the resilience of the US consumer despite ongoing concerns of a slowdown. But many economists see this as the high-water mark for economic growth before the credit tightening induced by the Federal Reserve's interest rate hikes and the recent rise in bond yields grabs hold of business development and consumer spending.


"Factoring tighter credit conditions, the restart of student loan payments, uncertainty regarding the lagged impact of monetary policy and a fragile global economic backdrop, real GDP growth is likely to drift below trend for several quarters," EY chief economist Greg Daco wrote in a research note prior to Thursday's release. "We foresee real GDP growing a muted 1.4% in 2024 following expected growth of 2.4% in 2023."


The key question for investors will be if the Fed has already tightened enough to bring the economy down from its hot third quarter, as Federal Reserve Chair Jerome Powell recently noted the central bank will need to see slower economic activity to ensure prices continue to cool.


"We certainly have a very resilient economy on our hands," Powell said in a discussion at the Economic Club of New York. "Many forecasts called for the US economy to be in recession this year. Not only has that not happened; growth is now running for this year above its longer-run trend. So that's been a surprise."


Source : Yahoo Finance / October 26, 2023 logo


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