A Closer Look at the 4th Quarter GDP Growth

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4th Quarter GDP Growth
The United States economy has shown resilience in the face of uncertainty, with gross domestic product (GDP) expanding at an annualized pace of 2.9% in the fourth quarter of 2022. 
This exceeded expectations of 2.6%, and is a clear indication that the nation has not entered a recession. This article will take a closer look at the factors that contributed to this growth, and what implications it may have for monetary policy.

Consumer Spending: The Key Driver of GDP
Consumer spending, which accounts for nearly 70% of GDP, rose by 2.1% from the previous quarter. This is a clear indication that the American public has continued to support the economy, despite ongoing challenges.
Other factors that contributed to GDP growth include private inventory investment, nonresidential fixed investment, and government spending at the federal, state, and local level. However, gains were partly offset by declines in residential fixed investment, which tracks the construction and sale of new homes, as a slowdown in the housing market deepened.

Implications for Monetary Policy
The stronger-than-forecast GDP report could prompt the Federal Reserve to adopt a more hawkish monetary policy stance. 
According to the CME Group’s Fed Watch Tool, Fed officials have penciled in two more rate hikes of 25 basis points each at the next two meetings of the Federal Open Market Committee (FOMC), with the possibility of a third-rate hike of equal magnitude in May. 
This would result in a terminal fed funds rate between 5% and 5.25%.
GDP Growth for the Year

For all of 2022, GDP expanded 2.1%, dragged down by two consecutive quarterly declines in the first half of the year. This is down from 5.9% in 2021, when the economy rebounded from the pandemic. 
Despite this, the overall growth seen in the fourth quarter suggests that the economy is on a solid footing, and that the future looks bright.