Thursday, June 8, 2023

USA: the economy grows by only 1.1% in the first quarter and shows signs of a slowdown

The U.S. economy grew moderately in the first quarter of 2023, slowing to an annual rate of just 1.1% as interest rate hikes hit mortgages and businesses reduced inventories.

A figure released Thursday by the Commerce Department showed that gross domestic product (GDP) weakened after growing 3.2% between July and September and 2.6% between October and December.

The slowdown reflects the impact of the Federal Reserve’s aggressive measures to curb inflation, with interest rate hikes nine during the year.

The sharp rise in the cost of borrowing is expected to trigger a recession this year. While inflation has steadily declined after hitting its highest level in four decades last year, it’s still well above the Fed’s 2 percent target.

The housing market, highly vulnerable to interest rate hikes, has been hit hard. Consumer spending, which drives 70% of the economy, has declined. And many banks have tightened lending terms after the collapse of two major banks last month, making it even more difficult to get a loan to buy a house or a car or to expand a business.

Many economists say the cumulative impact of the Fed’s rate hikes has not yet been felt, but those behind the central bank’s actions point to a so-called soft landing: cooling growth enough to curb inflation, but without the largest economy in the world falls into recession.

There is widespread skepticism that the Fed can achieve its purpose. An economic model from the Conference Board, a business research group, says there is a 99% chance of a recession within the next year.

World Nation News Desk
World Nation News Desk
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