The US Economy Slows Sharply As Interest Rates Rise

(CTN News) – Since January through March, the US economy has slowed sharply, decelerating to just 1.1% annually as higher interest rates weigh on the housing market and businesses reduce inventories.

According to an estimate released by the Commerce Department on Thursday, the nation’s gross domestic product weakened after rising 3.2% from July through September and 2.6% from October through November.

Over the past year, the Federal Reserve has hiked interest rates nine times in an effort to tame inflation.

It is expected that the surge in borrowing costs will cause the economy to enter a recession at some point this year. Inflation has steadily declined from its four-decade high last year, but it remains substantially higher than the Fed’s target of 2%.

As a result of rising interest rates, the housing market has been particularly vulnerable. There has been a decline in consumer spending, which accounts for approximately 70% of the economy.

In addition, many banks have tightened their lending standards in the wake of the failure of two major US economy banks last month. This makes it harder to obtain financing for the purchase of a home, a vehicle, or to expand a business.

Many economists believe that the cumulative impact of the Fed’s rate hikes has yet to be fully realized. In spite of this, the central bank’s policymakers seek to achieve a soft landing: a reduction in growth sufficient to curb inflation, but not enough to plunge the world’s largest economy into recession.

Despite the Fed’s success, there is widespread skepticism. Conference Board estimates that 99% of the US economy will suffer from a recession in the next year.

As the economy rebounded from the Covid-19 recession, the Conference Board’s recession-probability gauge hovered around zero until March 2022, when the Fed started raising interest rates.

Approximately 70% of US economy output comes from consumer spending. As a result of warm weather and higher social security checks, retail sales enjoyed a strong start in January. As a result, retail sales declined in February and March.

A financial crisis similar to 2008 has eased over the past month. Growth may be constrained by lingering credit cutbacks, which were mentioned in the Fed’s survey of regional economies this month.

Political risks are also on the rise. If Democrats and President Joe Biden do not agree to spending restrictions and cuts, Congressional Republicans threaten to let the federal government default on its debts. There would be a global financial crisis if the US economy Treasury defaults on its debt – the world’s largest.

In addition, the global backdrop appears to be bleaker. Global interest rates are rising, financial uncertainty is increasing, and chronic inflation is plaguing the global economy, according to the International Monetary Fund. Exports from the United States may suffer as a result.

There have been times when the US economy has surprised. After two straight quarters of GDP shrinkage, recession fears rose early last year. After a slow start to 2022, consumer spending surprisingly surged in the second half.

The strong job market has given Americans the confidence and financial means to keep on shopping: 2021 and 2022 were the two best years for job creation ever. So far this year, hiring has remained steady, though it has slowed from January to February and then to March.

According to FactSet’s survey of forecasters, the government will release the April jobs report on 5 May, which is expected to show employers adding 185,000 jobs this month.

How is the current US economy?

Gross Domestic Product, Fourth Quarter and Year 2022 (Third Estimate), GDP by Industry, and Corporate Profits. Real gross domestic product (GDP) increased at an annual rate of 2.6 percent in the fourth quarter of 2022, after increasing 3.2 percent in the third quarter.

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