The
US economy
slowed sharply from January to March, at an annual pace of just 1.1%, as higher interest rates hit the housing market and businesses reduced inventories.
Thursday's estimate from the Commerce Department showed the nation's GDP, the broadest gauge of economic output, weakening after growing 3.2% from July to September and 2.6% from October to November.
But consumer spending, which accounts for about 70% of US economic activity,
remained resilient
, growing at an annual rate of 3.7%, the fastest quarterly pace in nearly two years.
The slowdown reflects the impact of
the Federal Reserve's aggressive push
to rein in inflation, with
nine interest rate hikes
over the past year.
Consumer spending, which accounts for about 70% of US economic activity, remained resilient.
Photo: Patrick T. Fallon / AFP
Rising borrowing costs are expected
to push the economy into a recession
sometime this year.
Although inflation has steadily declined from a four-decade high reached last year, it remains well above the
Fed's 2% target.
The housing market
The housing market, which is especially vulnerable to higher loan rates, has taken a hit.
And many banks
have tightened their credit standards
since the bankruptcies of two major US banks last month, making it even more difficult to borrow to buy a house or car or expand a business.
Many economists say the cumulative impact of the Fed's rate hikes
has yet to be fully felt
.
However, central bank policymakers are aiming for a so-called soft landing: cooling growth enough to
curb inflation,
but not so much that it sends the world's largest economy into recession.
recession in 2024
There is
widespread skepticism
that the Fed will succeed.
An economic model used by the Conference Board, a business research group, puts the probability of a US recession over the next year at 99%.
The Conference Board's recession probability indicator hovered around zero from September 2020, when the economy recovered explosively from the COVID-19 recession, until March 2022, when the Fed began raising rates to combat the inflation.
Consumers, whose spending accounts for roughly 70% of US economic output, seem to be
starting to get cold feet
.
Retail sales had enjoyed a strong start in January, helped by warmer-than-expected weather and higher Social Security checks.
But in February and again in March, retail sales fell.
The worst fears of a
2008-style
financial crisis have been allayed over the past month.
But persistent credit crunching, which was mentioned in this month's Fed survey of regional economies, is likely to hamper growth.
Political risks are also growing.
Congressional Republicans are threatening to let the federal government default on its debts by refusing to raise the legal limit on how much you can borrow if Democrats and President Joe Biden don't agree to the restrictions and spending cuts.
The first federal debt default
would wreck the US Treasury bond market,
the world's largest, and possibly spark a
global financial crisis.
The
global context
also looks bleaker.
The International Monetary Fund this month lowered its global economic growth forecast, citing rising interest rates around the world, financial uncertainty and chronic inflation.
US exporters could suffer the consequences.
Associated Press
ap
look also
For the IMF, the global economy is "anemic" and will grow just 2.8% this year
"Let's finish the job": Joe Biden announced his candidacy for re-election in 2024