The US economy expanded at a 2.3% annualised rate in the fourth quarter, slowing from a 3.1% pace in the July-September period, according to an advance estimate from the Commerce Department’s Bureau of Economic Analysis.
The figure fell short of Rueters economists’ forecasts, which had projected growth of 2.6%. Estimates had ranged from 1.7% to 3.2%.
The slowdown follows a record high goods trade deficit in December, which led the Atlanta Federal Reserve to cut its GDP growth estimate from 3.2% to 2.3%.
Despite this moderation, the economy has remained resilient, defying earlier predictions of a recession after the US central bank raised interest rates by 5.25 percentage points in 2022 and 2023 to combat inflation. Growth continues to outpace the 1.8% rate that policymakers consider non-inflationary, Reuters reported.
Fed cautious amid policy uncertainty
The Federal Reserve kept its benchmark interest rate in the 4.25-4.50% range on Wednesday (January 29), having already cut rates by 100 basis points since September. In its policy statement, the Fed removed its previous reference that inflation “has made progress” toward its 2% target.
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Fed Chair Jerome Powell described the economy as “strong overall.” The central bank now projects only two rate cuts in 2025, down from the four predicted in September, reflecting concerns over fiscal, trade and immigration policies under the incoming Trump administration.
Consumer spending remains robust
Economic uncertainty has been further fuelled by expectations of tax cuts, broad tariffs on imports, and mass deportations of undocumented immigrants, which economists warn could drive inflation higher, Reuters reported.
Anticipation of tariffs and a potential ports strike led businesses to front-load imports in November and December, widening the trade deficit. However, consumer demand has remained strong, with most of these imports being quickly absorbed.
Consumer spending, which makes up over two-thirds of the economy, grew at a 4.2% annualised rate in Q4, up from 3.7% in the previous quarter. This continued strength in domestic demand could keep the Federal Reserve cautious in its approach to rate cuts in the coming months, it added.
(With input from Reuters)
(Edited by : Shoma Bhattacharjeed)
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