US economy slowed but still grew at a rate of 2.9%

The US economy expanded at an annual rate of 2.9% from October to December, ending 2022 strong despite pressure from high interest rates and widespread fears of an impending recession.

Thursday’s estimate from the Commerce Department showed the nation’s gross domestic product, the broadest gauge of economic output, slowed last quarter from the 3.2% annual growth rate it had posted from July to September. . Most economists believe the economy will slow further in the current quarter and slide into at least a mild recession by midyear.

The housing market, which is especially vulnerable to higher lending rates, has already been hit hard: Existing home sales have fallen for 11 straight months.

And consumer spending, which powers about 70% of the entire economy, is likely to weaken in the coming months, along with the still-resilient job market.

The expected slowdown in the economy is an intended consequence of the Federal Reserve’s aggressive series of rate hikes. The Fed’s hikes are aimed at reducing growth, cooling spending and squashing the worst inflation in four decades. Last year, the Fed raised its benchmark rate seven times. It is scheduled to do so again next week, although this time in a smaller amount.

The resilience of the US labor market has been a big surprise. Last year, employers added 4.5 million jobs, second only to the 6.7 million added in 2021 in government records going back to 1940. And last month’s unemployment rate, 3, 5% coincided with a minimum of 53 years.

But the good times for American workers are not likely to last. As higher rates make borrowing and spending more expensive throughout the economy, many consumers will spend less and employers are likely to hire less.

The Fed has been responding to an inflation rate that remains stubbornly high even though it has been gradually declining. Year-on-year inflation reached a rate of 9.1% in June, the highest level in more than 40 years. It has cooled since then, to 6.5% in December, but is still well above the Fed’s 2% annual target.

Another threat to the economy this year has its roots in politics: House Republicans could refuse to raise the federal debt limit if the Biden administration rejects their demand for sweeping spending cuts. If the borrowing limit is not increased, the federal government will not be able to pay all of your obligations and could destroy your credit.

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