The US economy accelerated to a strong 4.9% annualized rate in the third quarter of 2023, despite the Federal Reserve's efforts to cool the expansion with high interest rates. This was the fastest quarterly pace of growth in nearly two years, and up sharply from the 2.1% growth rate in the second quarter.
The rebound in growth was driven by a surge in consumer spending, which accounts for about two-thirds of the US economy. Consumers boosted their spending on everything from cars to concert tickets to restaurant meals. Businesses also contributed to the growth, with increased spending on new factories and other buildings.
The strong growth in the third quarter is a positive sign for the US economy, but economists caution that it is likely to be a high-water mark for the expansion. The Fed is expected to continue raising interest rates in an effort to bring down inflation, which is at a 40-year high. This is likely to slow economic growth in the coming quarters.
The Biden administration has seized upon the strong growth in the third quarter as evidence that its policies have helped spur solid growth. However, surveys show that most Americans hold a sour view of the president's handling of the economy.
Overall, the US economy is in a strong position, but it is facing some headwinds, including high inflation and rising interest rates. It is important to watch how these factors unfold in the coming months to get a better sense of the outlook for the economy.
The US economy accelerated to a strong 4.9% annual rate from July through September, according to the Commerce Department. This was the fastest pace of growth in two years and more than twice the 2.1% annual rate of growth in the previous quarter.
Consumer spending drove the acceleration, growing at a 2.6% annual rate, the fastest pace since the fourth quarter of 2021. Businesses also increased their investment in inventories, which boosted growth.
The strong economic growth came despite the Federal Reserve's efforts to slow the economy with high interest rates. The Fed has raised interest rates five times this year in an effort to combat inflation, which is at a 40-year high.
Economists say that the strong economic growth in the third quarter is likely to be temporary. They expect growth to slow in the fourth quarter and into 2024 as the Fed's rate hikes continue to have an impact on the economy. However, the strong growth in the third quarter suggests that the economy is still resilient and that a recession is not imminent.
Here are some of the reasons why consumers may be shrugging off Fed rate hikes:
- Strong labor market: The US labor market is very strong, with low unemployment and rising wages. This is giving consumers the confidence to spend money.
- Savings: Consumers built up a lot of savings during the pandemic, and they are now drawing on those savings to spend.
- Pent-up demand: Consumers have been putting off purchases due to the pandemic and supply chain disruptions. Now that the pandemic is starting to subside and supply chains are improving, consumers are unleashing their pent-up demand.
It is important to note that the strong economic growth in the third quarter does not mean that the economy is out of the woods. Inflation is still high, and the Fed is likely to continue raising interest rates. This could eventually lead to a recession. However, for now, the US economy is still growing at a healthy pace.
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