The US economy is expected to have expanded modestly in the first quarter of 2023 as the Federal Reserve pressed ahead with its historic tightening campaign.
The world’s largest economy is expected to have grown 2 percent annualized between January and March, according to a consensus forecast compiled by Bloomberg. That would mark a slowdown from the 2.6 percent pace recorded in the last three months of last year.
The data, which will be released by the Commerce Department at 8:30 am ET on Thursday, will show that the US economy continued to show pockets of strength even as its momentum waned. Economists anticipate that strong consumption growth over the three-month period will more than offset the drag on net exports and inventories.
A year of aggressive tightening by the Federal Reserve, aimed at cooling inflation, has also begun to affect economic growth and the US job market. Since March of last year, the Fed has raised its benchmark policy rate. from near zero to just under 5 percent, the fastest rise in decades.
And officials are prepared to offer another quarter-point rate hike next week, which would lift the fed funds rate to a new target range of 5 percent to 5.25 percent, before considering a pause in its rate. rate increase campaign.
A pause from June would allow Fed policymakers to assess the impact of its actions over the past year, as well as the severity of the credit crunch stemming from the recent banking turmoil that Chairman Jay Powell previously said could have the same effect as a rate adjustment. But some officials are open to more Fed action if the data warrants it.
What has kept officials on edge is the surprising resilience of the economy and, more specifically, the labor market, which remains tight. But early signs of a cooldown in monthly job gains and wage growth have provided some reassurance that the worst of the inflation shock is over and the Fed is moving closer to controlling price pressures.
Officials say that for inflation to return to the Fed’s longstanding 2% target, a period of “below-trend growth and some weakening of labor market conditions” will be necessary, but fell short of forecast a recession.
The official arbiters of whether or not the United States is in recession, a group of economists at the National Bureau of Economic Research, characterize one as a “significant decline in economic activity that spans the entire economy and lasts longer than a few months.” “.
Starting in March, most officials expect inflation-adjusted GDP growth to slow to 0.4 percent in 2023, before recovering to 1.2 percent the following year. Meanwhile, the unemployment rate is expected to peak at 4.6 percent in 2024, according to most officials, up from its current level of 3.5 percent.
In particular, the Fed staff takes a more pessimistic view, projecting the economy will slip into recession this year before starting a recovery.
