US Economy Shrugs Off Recession Prediction with Strong Fourth-Quarter Performance

• The U.S. economy exceeded expectations in Q4, growing at a 3.3% annualized rate, with a full-year growth of 2.5%, defying concerns of a recession following aggressive interest rate hikes by the Federal Reserve.
• The Commerce Department's report indicated a further reduction in inflation pressures during the last quarter, suggesting that the central bank may not cut interest rates in March. However, rate cuts later in the year remain a possibility as inflation cools.
• The report concludes a year of remarkable economic growth, particularly noteworthy given the backdrop of the Fed's tightening monetary policy throughout the year. GDP growth was supported by strong consumer spending, increased exports, additional government spending, and a rise in business investment. The housing market also showed a modest gain.
• Despite expectations of a downturn, the U.S. economy demonstrated resilience, attributed to a robust labor market, low layoffs, strong wage gains, increased government spending, and near-zero interest rates during the COVID-19 pandemic.
• The Federal Reserve's aggressive rate hikes raised concerns, but the economy's robust performance led economists to revise their recession predictions. While financial markets indicate a probability of a rate cut in May, the Fed is expected to maintain the current policy rate range at its upcoming meeting.
• Consumer spending, a key driver of the economy, remained solid, supported by increased household income and savings from the pandemic era. Inflation remained subdued, with housing being a notable contributor to the core PCE price index. That said, the economy is still viewed as being in a disinflationary mode, with limited Fed influence on structural housing supply deficiencies.

(Source: Reuters)