The US economy is powering into a phase of robust growth and the recession fears have receded, a reading of the latest GDP and employment numbers have shown.
The world’s largest economy expanded more than expected in the first quarter, even as inflation and jobless numbers also stayed positive. According to the US Bureau of Economic Analysis, the US economy grew 1.3 percent, while the market had expected a 1.1 percent expansion.
Long-Held Fears of US Recession
“With the second estimate, upward revisions to private inventory investment, state and local government spending, nonresidential fixed investment, consumer spending, and exports were partly offset by a downward revision to residential fixed investment. Imports were revised up,” the bureau said in a quarterly report.
The latest data set shows that the long-held fears of a US recession were more or less misplaced. There has been a frenzy over impending recession in the US even as inflation breached limits last year and the Federal Reserve started tightening monetary policy.
“The argument that we’re definitely going into a recession is dubious … The question is, can inflation come down enough to hit the target, and that’s the one that is not clear at this point,” said Blackrock’s CIO of fixed income Rick Rieder, according to Yahoo Finance.
In early May the US central bank raised benchmark interest rates by 25 basis points, marking the tenth consecutive time it raised rates since March 2022. However, the Fed chairman also suggested it would be premature to expect any rate cuts in the near future as inflation remained high. After the latest round of rate hike, the US rates went past 5 percent, the first time it has done so since 2007. The current rate hike regime is also the most aggressive since the 1980s.
This high-rates scenario was unfolding from mid-last year, prompting analysts and economic experts to argue that the economy was slipping into an inevitable recession as it was being choked off of funds.
According to the Yahoo Finance analysis, consumer spending power is not deteriorating at an aggressive pace in the US. “A combination of stronger growth and stronger inflation in Q1 make it even more likely that the Fed will see further rate hikes as needed to cool activity enough to bring inflation back to 2%,” Citi economists said, according to the analysis.
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