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The US economy grew at a 3.3 per cent annualised rate during the final quarter of last year, capping off a strong 2023 that defied recession fears but left President Joe Biden struggling to claim credit.
The figures add to evidence that the US economy has shown remarkable resilience in the face of the Federal Reserve’s lengthy campaign of high interest rates, paving the way for possible rate cuts in the coming months.
Separate data showed consumer prices rose at an annual rate of 1.7 per cent in the fourth quarter, down from 2.6 per cent three months earlier.
The twin sets of positive numbers suggest the US central bank may be on course to pull off a so-called soft landing, in which inflation is tamed without triggering a recession.
The Biden administration feels vindicated by falling inflation, strong jobs numbers and rising consumer sentiment, which they hope will reverse what has been broad dissatisfaction with the state of the economy in most US households.
According to the Realclearpolitics.com polling average, 58.6 per cent of US citizens disapprove of Biden’s handling of the economy, compared to 37 per cent who approve — a big gap which the White House is desperate to close ahead of November’s presidential election in which Biden is expected to face Donald Trump.
Janet Yellen, the US Treasury secretary, was due to give a speech on Thursday afternoon in Chicago where she was expected to trumpet the strong economy.
“Though some forecasters thought a recession last year was inevitable, President Biden and I did not. Instead of contracting, the economy has continued to grow, driven by American workers and President Biden’s economic strategy,” Yellen was due to say, according to excerpts of the speech released by the Treasury department.
The fourth-quarter growth rate was slower than the 4.9 per cent of the previous three months, but substantially higher than economists’ estimates. The 3.1 per cent figure for annual growth in gross domestic product also beat expectations.
US stocks and bond markets rallied on the data, as investors focused on figures showing inflation appeared to be coming under control.
“This GDP reading cements America’s position as the dominant driver of global growth,” said Eswar Prasad, an economics professor at Cornell University.
He added the US’s “unexpected standout performance is the economic story of 2023 and a positive omen for what is otherwise shaping up as a gloomy year ahead for global growth”.
The figures come as central banks contemplate cutting rates in the coming months as inflation comes closer to their 2 per cent target.
The European Central Bank on Thursday said it would hold eurozone rates steady at a record high of 4 per cent, but noted inflation was falling in line with its expectations.
In the press conference following the decision, ECB president Christine Lagarde said the pick-up in inflation in December had been “weaker than expected” and forecast price pressures would “ease further over the course of the year”.
Following the US GDP data release, US Treasuries extended the session’s rally, with the yield on the policy-sensitive two-year note down 0.05 percentage points to 4.33 per cent.
Wall Street’s S&P 500 index was up 0.3 per cent in early afternoon trading in New York, giving the benchmark index a chance at notching its fifth record high close in a row. The tech-heavy Nasdaq Composite gained 0.4 per cent.
Additional reporting by Stephanie Stacey and George Steer in London