FX.co ★ US economic growth shocks Fed

According to Bloomberg, in the third quarter of 2023, the US economy expanded at the fastest pace in the last two years. However, this fact caused concerns among policymakers instead of encouraging them. As a result, Federal Reserve officials reached an impasse, having no idea what to do next.

Analysts suppose that such “surprising acceleration was primarily powered by a consumer reaping the benefits of resilient job growth, rising wealth, and easing inflation.”

Under the current conditions, economists predict that the economy may increase by 4.5% on a yearly basis in the third quarter. This forecast twice exceeds the previous reading. The growth could become the most significant since 2021 when the country’s economy was trying to cope with the pandemic aftermath.

Most experts were surprised by a burst of consumer spending. Even the Federal Reserve did not expect such a jump. Meanwhile, US President Joe Biden now may announce his economic policy's effectiveness in fighting galloping inflation.

Notably, for Jerome Powell, the situation is not that rosy. The fact is that in March 2022, the US central bank started raising the benchmark rate very sharply to combat inflation, reduce demand, and avoid a recession. As a result, inflation dropped amid less frequent disruptions in global supply chains. However, domestic demand remains stable, like the US labor market, which is still boosting consumer spending.

In this light, additional signs of steady economic growth could be redundant. They may even prevent the Federal Reserve from further success in the fight against inflation. What is more, a long-lasting economic expansion could be a reason for monetary policy tightening. Nevertheless, the Fed kept the interest rate unchanged but did not exclude a new hike in the near future.