The US economy likely finished 2022 with on a high note despite its numerous challenges. FactSet’s economists have estimated that the GDP grew at a 2.3% annual pace from October to December. However, the economy is still broadly expected to slow down and potentially slide into a recession in the coming months. That’s the result of the Federal Reserve’s high interest rates.
The Fed’s rate increases have bloated borrowing costs for consumers and businesses. This affects a variety of businesses as well as consumer, rising the costs of loaning from auto loans to morgages. The housing market, which shows significant weakness to higher loan rates, has been badly affected. Existing home sales have been dropping for 11 consecutive months.
Investment in housing also plunged at a 27% annual rate from July to September. Consumer spending may also soften in the upcoming period. That’s especially concerning, since it fuels about 70% of the economy. The still-robust job market may follow, despite currently outperforming predictions.
If there’s silver lining, it’s definitely in the overperforming job makret. in the previous year, employers added 4.5 million jobs. That’s the runner-up result since government records have started, with only the 6.7 million that were added in 2021 beating it. Last month’s unemployment rate of 3.5% also matched a 53-year low.
However, the good times for America’s workers are not expected to last. Higher rates are making borrowing and spending increasingly expensive across the economy, leading to less spending and hiring by consumers and employers.
Last year, we saw the fed raise benchmark rates a whole of seven times in large increments to curb the spike in consumer prices. We’re likely to see another, albeit smaller, Fed rate hike next week. this has been a resposne to a stubbornly high inflation rate, despite ocasional letups. Year-over-year inflation was at a 9.1% in June, a high of more than 40 years.