US Economy Shows Strong Growth, Easing Inflation in Q4 Report

Summary

  • The Commerce Department reported strong Q4 economic growth, with signs of inflation decreasing.
  • The economic momentum, which has continued into the new year, indicated that March would be too early for the U.S. central bank to cut interest rates.
  • The gross domestic product (GDP) rose at a 3.3% annualized rate in Q4, following a 4.9% rise in Q3.
  • The quick pace at which the Federal Reserve (Fed) was increasing rates led to gloomy forecasts, but most have now withdrawn their recession predictions for the year.
  • The central bank is expected to keep its policy rate at the current 5.25%-5.50% range at its next meeting.

US Economy Performance

The U.S. Commerce Department report released last Thursday revealed a strong gross domestic product growth in the final quarter of the year. This growth trend seems to have extended into the new year, indicating it might be premature for the U.S. central bank to consider interest rate cuts in March. Nevertheless, rate cuts remain a possibility later in the year as inflation cools off.

Olu Sonola of Fitch Ratings said, “This report marks a year of impressive economic growth performance, set against the Fed’s assertive monetary policy tightening cycle. The economic growth momentum heading into 2024 looks very promising.”

GDP and Job Creation

In the last quarter, the gross domestic product escalated at a 3.3% annual rate, following a 4.9% rise in the third quarter, as reported by the Commerce Department’s Bureau of Economic Analysis. Factors such as increasing exports, government spending, and business investments supported this growth.

The economy witnessed an acceleration from 1.9% in 2022, as it created 2.7 million jobs in 2023, reflecting labor market resilience that revolved around fewer layoffs and noteworthy wage gains.

Unemployment Claims and Government Spending

According to a separate report from the Labor Department on Thursday, initial claims for state unemployment benefits rose by 25,000 to a seasonally adjusted 214,000 for the week ended Jan. 20, which remains relatively low by historic standards.

Government spending and low-interest rates during the COVID-19 pandemic helped corporations and households secure low borrowing rates and averted a potential recession. The gloomy recession forecasts were primarily based on the fast pace at which the Fed was increasing rates to curb demand.

Consumer Spending and Inflation

Consumer spending, which accounts for over two-thirds of U.S. economic activity, increased at a 2.8% rate in the fourth quarter. This was facilitated by rising wages, higher interest and dividend income, which more than offset the declining government social benefits.

The strong economic growth surprisingly occurred alongside diminishing inflation. Specifically, a measure of inflation in the economy grew at a 1.9% pace in Q4 after rising at a 2.9% rate in the previous quarter.

As for how this could impact forex or trading, a robust U.S. economy could lead to a further strengthening of the USD, impacting the forex markets globally. Similarly, diminishing inflation could influence the valuation of assets within the trading markets.

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