US Economy Grows Below Expectations in Q4
In the final quarter of 2024, the US economy expanded at an annualized rate of 2.3%, falling short of the 2.6% forecast by economists. This marks a slowdown from the 3.1% growth observed in Q3.
Drivers and Barriers to Growth
Consumer and government spending supported economic growth in the quarter, while a decline in investment partially offset these gains. For the entire year, the US economy expanded at a rate of 2.8%, marginally below the 2.9% growth in 2023 but exceeding the 2.5% growth in 2022.
"Sustained consumer spending fueled overall economic growth, as high employment, rising wages, and wealth effects from increased equity and real estate values have boosted spending, particularly among affluent households," noted Nationwide's Chief Economist, Kathy Bostjancic.
Potential Impediments
Despite growth, concerns remain about business investment falling, net exports remaining flat, and a sharp decline in inventories. Retailers' efforts to bolster their inventory levels ahead of potential tariffs may have contributed to this inventory drawdown.
Inflation and Interest Rates
The core Personal Consumption Expenditures index, excluding food and energy, increased by 2.5% in Q4, meeting estimates and surpassing the 2.2% growth in the previous quarter. This data release coincides with investors speculating on the Federal Reserve's plans to reduce interest rates in 2025 following their steady hold on Wednesday.
In a press conference, Fed Chair Powell affirmed the economy's "continued strength" while acknowledging the persistence of "somewhat elevated" inflation. "There is no need for haste in adjusting our policy stance," Powell stated.
According to the CME FedWatch Tool, after the Fed's meeting on Wednesday, markets assign a less than 50% likelihood that the Fed will cut rates before its June meeting.