Economic growth accelerated to a 4.9% seasonally adjusted annual rate in the third quarter of this year, up from 2.1% the quarter before, the Bureau of Economic Analysis reported Thursday morning.
Economists had expected gross domestic product growth to increase by 4.2%, so the report came in even hotter than anticipated. While that is good news for the overall health of the economy, it complicates things for the Federal Reserve, which has been raising interest rates for more than a year in order to tamp down the country’s blistering inflation.
The GDP numbers, which are adjusted for inflation, represent the government’s preliminary estimate — the first of three revisions that will be made over the coming months as analysts get a better picture of how the economy performed during the third quarter.
After more than a year of successive interest rate hikes, some by very aggressive margins, the Fed decided to pause its rate hiking at its last meeting. But despite forgoing another rate revision, the Fed’s target rate is still the highest it has been since the dot-com bubble at 5.25% to 5.50%.
NEW HOME SALES INCREASE IN SEPTEMBER TO HIGHEST RATE IN 19 MONTHS
While the Fed has paused, it is unclear whether the central bank will raise rates again before its tightening cycle concludes.
Right now, it appears that the philosophy among Fed officials is that they will keep rates higher for longer rather that continuing to hike. Having rates remain at their current level into next year is still expected to dampen GDP, though, a prospect that has caused fears of a broad-based economic slowdown or even a recession.
Typically, two back-to-back quarters of negative GDP growth are indicative of a recession. The fact that the GDP was positive in the first quarter, the second quarter, and now boomed again in the third quarter, bodes well for the economy in avoiding a recession, although if the Fed decides to keep rates at their current level for longer, it raises the odds that GDP starts to take a whack.
While inflation has largely been in decline since June 2022, the past few months have shown annual price growth remaining uncomfortably hot, raising expectations that interest rates won’t start to be cut anytime soon.
Despite the strong GDP growth, the Fed’s tightening has reverberated throughout the economy and hurt consumers.
The housing market has been hit especially hard. Mortgage rates have soared to multi-decade highs in response to the Fed’s restrictive monetary policy.
As of Tuesday, the average rate on a 30-year, fixed-rate mortgage was 7.9%, according to Mortgage News Daily, which tracks daily changes in rates. Last week, mortgage rates peaked at 8.02%. The last time rates passed 8% was in 2000, according to separate records maintained by Freddie Mac.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
While the housing market has taken a hit from Fed’s rate hiking, the labor market — which would be expected to soften because of the tightening — has remained surprisingly resilient.
The labor market added 336,000 jobs in September — a number that was much better than economists had expected. Employment gains in July and August were also revised upward by a combined 119,000.
