The U.S. economy saw strong upside growth from July to August as inflation continued to decline.
The U.S. economy grew an annualized 5.2% in the third quarter of 2023, the strongest growth since the fourth quarter of 2021 and up from the advanced estimates of 4.9%, according to the latest report from the Commerce Department’s Bureau of Economic Analysis (BEA).
Compared to the 2.1% increase in the second quarter, BEA notes that the 5.2% acceleration in real GDP during Q3 primarily reflected an increase in “consumer spending and private inventory investment” as well as an “upturn in exports that were partly offset by a deceleration in nonresidential fixed investment.”
The PCE price index, the Federal Reserve’s preferred measure of inflation, saw a 2.8% increase in Q3, which was revised down by 0.1 percentage point. Meanwhile, the Core PCE price index, which excludes food and energy prices, increased 2.3% during the quarter, marking a downward revision of 0.1 percentage point, data shows.
“The latest GDP release’s downward revisions to PCE inflation will add to the Fed’s confidence that they have raised interest rates enough,” wrote Bill Adams, chief economist for Comerica Bank, in a research note, per Yahoo Finance.
The Federal Reserve has increased interest rates 11 times since March 2022, bringing its benchmark Fed funds rate from near zero percent to its current range between 5.25% to 5.50%, the highest level in 22 years, as previously reported by The Dallas Express.
According to the latest Fed Minutes, which are released three weeks after each policy-setting meeting, all participants agreed to proceed carefully and to base future policy decisions on “the totality of incoming information and its implications for the economic outlook as well as the balance of risks.”
With headline inflation falling to 3.2% year over year in October and real GDP being revised to 5.2%, this is good news for the economy and for the markets, according to Raymond James’ chief economist Eugenio Aleman, per Yahoo Finance.
“Perhaps [Wednesday’s revision] was the reason why several Fed speakers have been relatively dovish lately and will probably cement the market’s conviction that the Fed is done increasing interest rates this cycle,” Aleman wrote in a research note Wednesday, per Yahoo Finance.