Personal consumption boosted growth in the fourth quarter. (iStock)
US Gross Domestic Product (GDP) 4th quarter The U.S. Bureau of Economic Analysis (BEA) said forecasts for 2023 were better than expected, pushing predictions of a recession further out.
Real GDP grew at an annual rate of 3.3% in the October-December period, after increasing 4.9% in the third quarter of 2023, according to BEA's preliminary estimates released on Thursday. Real GDP increased by 2.5% this year, compared to 1.9% in 2022. According to Reuters, economic forecasts predicted economic growth of 2%, slowing month-on-month growth. report.
BEA said the better-than-expected growth was due to strong consumer spending on both goods and services. At the same time, the personal consumption expenditures (PCE) price index increased by 1.7% in the fourth quarter, compared to a 2.6% increase in the previous quarter. PCE, which excludes food and energy, was on target at 2%, meaning there was growth despite moderate inflation.
Gross domestic product growth in the fourth quarter was enough to further ward off recession fears, but the pace remains at a pace that supports the Federal Reserve's intention to cut interest rates later this year.
“GDP has four cylinders, and the fourth quarter fired up all of them,” Robert Frick, corporate economist at Navy Federal Credit Union, said in a statement. “Again, consumer spending made the biggest contribution as employment growth and above-inflation wage growth stimulated purchasing power.
“Experts are already saying this could not be better, but then again, most people predicted a recession last year, but it never came.”Flick He continued. “In fact, we had strong overall growth for the year at 2.5%. Another good news is that the PCE price index was on target at 2%, which means good growth with low inflation. It means we've done it. This has paved the way for the rest of the world.''The Fed will deliver on at least the three expected rate cuts this year. ”
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Strong GDP keeps housing demand steady
A reversal in interest rates will be crucial in igniting a mortgage market that has recently begun to show signs of thawing. Fannie Mae projects mortgage rates will fall below 6% by the end of 2024, with the Federal Reserve's assurances that it may cut rates sooner than expected. Lower interest rates will increasingly set back homeowners whose mortgage rates are currently locked in below 6%. Enter the housing market.
Robust economic growth will also help keep demand for housing strong, said Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association.
“Accelerating economic growth will benefit the housing market and maintain strong demand,” Fratantoni said in a statement. “For the economy in general, 2023 was a much better year than we expected, despite the downturn in the housing and mortgage markets. We still expect the economy to slow in 2024. “However, with this strong momentum in the fourth quarter, a sharp decline is unlikely. A path to lower interest rates should help the housing market.”
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No rate cut schedule has been set yet
The Federal Reserve will meet on January 30th and 31st to discuss interest rates. According to a recent Finder.com report, most economists expect the policy rate to remain at its current level of 5.25% to 5.5%. investigation By industry experts.
A majority of industry experts (92%) said the Fed would keep rates unchanged at its next meeting, and 8% expected the Fed to cut rates by 0.25%. However, most expect a rate cut before the end of the year.
“The economy remains strong and consumer purchases are still driving gross domestic product (GDP) up,” said Cynthia Wiley, partner and co-founder of the project consultant, who participated in the study. . “Inflation is cooling. The Fed is signaling a 75 basis point decline in 2024. Inflation rose slightly in December, so I think it will start in March. We don't know exactly when, but the Fed I think we'll maintain 75 basis points.'' We'll maintain basis points through 2024. ”
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