Economic growth in the US was much stronger than expected in the second quarter of 2023, as activity proved resilient in the face of the Federal Reserve’s campaign of aggressive interest rate rises.
The world’s largest economy grew 2.4 per cent on an annualised basis between April and June, according to preliminary figures released by the commerce department on Thursday.
That marked a rebound from a 2 per cent growth rate in the first quarter, and was well above the 1.8 per cent rate predicted by economists.
Consumer spending growth slowed after an unusually strong start to the year but the reduction was more than offset by strong business investment in inventories and fixed assets.
The data comes a day after the US central bank raised its benchmark interest rate to the highest level in 22 years as part of its efforts to tame inflation.
The consumer price index in the US has fallen from a peak of more than 9 per cent in June 2022 to 3 per cent last month, while the unemployment rate remains close to record lows and consumer confidence has improved.
The combination of recent data has raised hopes among economists and investors that the central bank will achieve the rare feat of a “soft landing” – bringing inflation under control without big economic damage. But others are concerned that the economy’s resilience will make it harder to bring inflation all the way to the Fed’s 2 per cent target.
Fed chair Jay Powell on Wednesday said his “base case is that we will be able to achieve inflation moving back down to our target without the kind of really significant downturn that results in high levels of job losses”.
He also noted the risks: “At the margins, stronger growth could lead over time to higher inflation and that would require an appropriate response for monetary policy, so we’ll be watching that carefully.” – Copyright The Financial Times Limited 2023
