November 8, 2023
The US economy exceeded expectations by growing at an annual rate of 4.9% in the third quarter of 2023. This was driven by a strong jobs market and consumer spending. Despite the Federal Reserve’s efforts to curb spending with higher interest rates, consumers continued to spend on concerts, movies, and holidays over the summer. Consumer spending, which accounts for over two-thirds of US economic activity, was the main driver of the growth. This marked a significant increase from the 2.1% growth observed in the previous quarter. The growth rate raised questions about the possibility of a recession, which had been a concern as the Federal Reserve increased rates to combat inflation. The US economy has so far defied these predictions.
However, some economists warn that growth may slow in the last quarter of 2023 as consumers may have spent the last of their pandemic-related savings. The Federal Reserve might find it necessary to implement further rate increases to combat persistent inflation. Additionally, factors like strikes by the United Auto Workers and the resumption of student loan repayments could hamper growth in the final quarter. Meanwhile, the European Central Bank (ECB) chose to keep interest rates unchanged as higher borrowing costs continue to affect the eurozone. After 10 successive rate increases, eurozone inflation has been falling but remains higher than the ECB’s target. The ECB has acknowledged the need for a long-duration high-interest rate strategy to combat inflation. While there are ongoing global economic risks related to the Middle East and Ukraine, the focus is shifting towards the potential for rate cuts, particularly as the Euro area economy stagnates.
Source: BBC News
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