Easy Does It

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What's going on?

Fresh data out on Thursday showed that US economic growth slowed less than expected last quarter.

What does this mean?

Rate hikes are one of the main weapons the Federal Reserve (the Fed) has in its war on inflation, and it hasn’t been particularly shy about firing them off. But while the economy’s sustained some damage, it still managed to stay on its feet last quarter. After all, a key measure of consumer spending – which makes up the lion’s share of the economy – increased by just over 2%. That’s less than economists expected, sure, but growth is growth. Government spending took its biggest leap in almost two years too, and companies upped their inventories – all of which helped plug the gap left by plunging residential property investments and dwindling exports. On the whole, the news was good: the economy grew at an annualized pace of 2.9%, a slowdown from the previous quarter, but better than the 2.6% economists expected.

Why should I care?

The bigger picture: Time will tell.
There’s no denying that the economy showed pluck last quarter, but some pundits still think rate hikes haven’t had their full impact yet, and reckon they’ll knock the economy into a mild recession as the year wears on. That chimes with a recent survey by Bloomberg: it revealed that economists think the economy will shrink by 0.6% and 0.3% in the second and third quarters of this year – marking a technical recession.

Zooming out: Deny all knowledge.
The Fed isn’t done yet: the central bank’s widely expected to hike rates by 0.25 percentage points next week, and eventually bring rates to 5% and hold them there for a while. But while economists are already sounding the recession alarm, the central bank insists a good old “soft landing” is still a possibility. At any rate, there’s no guarantee it’ll fess up if things do take a turn: it kept mum when a technical recession set in last year, after all.

Originally posted as part of the Finimize daily email.

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