US GDP Growth Surges to 2% in First Quarter, Beating Expectations and Defying Fed’s Restrictive Policy Measures

In the previous estimate, published at the end of May, growth over the same period was announced at an annualized 1.3%, and even 1.1% in the preliminary estimate.

The growth of gross domestic product (GDP) of the United States was revised sharply up for the first quarter, to 2% at an annualized rate, according to the third estimate of the Commerce Department released Thursday.

In the previous estimate, published at the end of May, growth over the same period was announced at an annualized 1.3%, and even 1.1% in the preliminary estimate.

This new estimate also exceeds market expectations, which envisaged growth still at 1.3%, according to the consensus published by Briefing.com.

“The updated estimate mainly reflects an upward revision to exports and consumer spending, despite lower non-residential investment and federal government spending,” the ministry said in its statement.

Another positive effect on growth, imports have also been revised downwards.

Using the same method of calculation as other advanced economies, which simply compare to the previous quarter, growth is also revised sharply upwards, to 0.7% for the first three months of the year against 0.3% for the previous estimate, slightly higher than the rate observed in the last quarter of 2022 (+0.6%).

This revision puts into perspective the slowdown observed so far which, for most analysts, was attributed to the actions taken by the Federal Reserve (Fed) to fight against high inflation.

It could only return to the target of 2% in 2025, said Wednesday the president of the institution, Jerome Powell.

“Even though the economy beat expectations” in the first quarter, “we expect the effects of the Fed’s restrictive policy to slow the pace of activity going forward and bring it below the potential growth,” HFE chief economist Rubeela Farooqi said in a note.

The Fed has been raising rates steadily since March 2022 to make it more expensive for households and businesses to access credit in order to slow consumption and investment, and therefore ultimately the economy. The aim is to help ease the pressure on prices.

This restrictive monetary policy could cause a mild recession in the second half of the year, Fed economists warned a few months ago. However, the higher-than-expected growth in the first quarter could put this perspective off and leave more scope for the Fed to carry out further rate hikes.

Jerome Powell ruled on Wednesday that two additional increases were being considered, possibly in a row. He downplayed the risks of a recession, saying at the central bankers’ forum in Sintra, Portugal: “It’s not the most obvious possibility but it’s a possibility all the same.”

2023-06-29 14:13:35


#USA #GDP #growth #quarter #sharply #revised