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The United States economy slowed

The United States economy has slowed significantly from last year’s rapid pace, said Jerome Powell, chairman of the Federal Reserve (Fed).

Real GDP increased at a 2.6% pace last quarter, but is unchanged year-to-date.

After growing 2.3% in 2019, the U.S. economy fell 3.2% in 2020 and then grew 5.7% in 2021.

Thus, after a strong growth recovery in 2021, which returned U.S. GDP to its pre-Covid-19 pandemic level, economic activity is expected to continue to be supported by household consumption (68% of GDP).

Powell said Wednesday that recent indicators point to modest growth in spending and output in the current quarter.

Consumer spending growth has slowed from last year’s rapid pace, partly reflecting declining real disposable income and tighter financial conditions.

Meanwhile, activity in the housing sector has weakened significantly, largely due to rising mortgage rates.

Rising interest rates and slowing output growth also appear to be weighing on business fixed investment.

Despite slowing growth, Powell added, the labor market remains very tight, with the unemployment rate at a 50-year low, job openings remain very high and wage growth is high.

United States economy

Job gains have been robust, averaging 289,000 jobs per month in August and September.

Powell expounded that although job openings have moved below their highs and the pace of job gains has slowed from earlier in the year, the labor market remains unbalanced, with demand substantially outstripping the supply of available workers.

The labor force participation rate has barely changed since the beginning of the year.

At the same time, inflation remains well above our long-term target of 2 percent.

In the 12 months ending in September, total Personal Consumption Expenditure (PCE) prices rose 6.2 percent; excluding the volatile food and energy categories, core PCE prices rose 5.1 percent.

And the latest inflation data have again come in higher than expected.

“Price pressures remain evident across a wide range of goods and services. Russia‘s war against Ukraine has sent energy and food prices soaring and created additional upward pressure on inflation,” Powell said.

Despite elevated inflation, longer-term inflation expectations appear to be well anchored, as reflected in a wide range of household, business and forecast surveys, as well as financial market measures.

However, this is no cause for complacency; the longer the current run of high inflation continues, the greater the likelihood that expectations of higher inflation will take hold.

 

Redacción Opportimes

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