U.S. economy grew by 2.9% in Q4 - Commerce Department

January 26, 2023 8:34 AM EST

By Scott Kanowsky -- U.S. economic growth eased by less than expected in the last three months of 2022, in a sign of the impact the Federal Reserve's recent monetary policy tightening cycle is having on household and business spending.

The world's biggest economy expanded by 2.9% on an annualized basis in the September to December timeframe, according the Commerce Department's latest gross domestic product report, down from 3.2% in the third quarter and above consensus estimates of 2.6%. Output previously contracted in the first half of the year.

The figure ends a year of ebbing economic activity marked by soaring inflation that was spurred on by a sharp recovery from the pandemic. The Fed has raised interest rates by more than 4 percentage points since March to cool red-hot prices, which many economists predict could weigh on demand and potentially spark a recession in the U.S. later in 2023.

Recent data has stoked concerns that consumers - the key driver of U.S. growth - may be starting to feel the pressure from these trends. Retail sales dropped in December as shoppers spent less on items like furniture and electronics that they accumulated en masse during the COVID-19 crisis in December. Existing home sales also declined, while companies across the manufacturing and services sector have cut back on hiring and wage increases.

But inflation now looks to have peaked, leading many Fed observers to predict that the central bank will unveil a smaller quarter-point hike of borrowing costs at its policy meeting next week.

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