Despite strong inflation and rising interest rates, the U.S. economy continued to grow in the third quarter, but at a slower rate than first anticipated. In the three months from July to September, we had the most substantial rate of increase in gross domestic product over two years, at 4.9% annually. A reduction in consumer spending to a 3.1% rate was the primary factor in this adjustment.
The most recent GDP report showed strength, but there are other indicators that the economy is starting to slow down, including a slowdown in employment creation, a protracted slump in the housing market, and a cooling down of consumer spending. As the effects of rising interest rates spread throughout the economy, many analysts predict that the economy will continue to cool in the months to come. When interest rates on consumer and commercial loans rise, businesses and consumers are prompted to cut down on spending, which slows down the economy.
On the other hand, Wall Street is becoming more hopeful that the Federal Reserve may achieve the long-sought-for “smooth landing.” Thanks to the US economy’s resiliency, the Federal Reserve may be about to accomplish a historically challenging goal: reducing inflation without increasing unemployment. This is despite interest rates being at their highest point in 22 years. For the week ending December 16, there were 205,000 first claims for unemployment insurance, an increase of 2,000 over the previous week’s revised total of 203,000. However, the number of new applications for help with unemployment remains low.
The likelihood that the Federal Reserve’s series of rate reductions this year will prevent a recession and a sharp increase in the unemployment rate has been increased by three major financial institutions: UBS, Bank of America, and Goldman Sachs.
Most predictions indicate that growth would decline in the last few months of the year, with the rate likely reaching its near-term crest in Q3.
