{"id":5973,"date":"2023-10-27T13:09:52","date_gmt":"2023-10-27T13:09:52","guid":{"rendered":"https:\/\/infundpros.com\/business\/5-reasons-the-economy-grew-so-much-last-quarter-despite-the-feds-efforts\/"},"modified":"2023-10-27T13:09:52","modified_gmt":"2023-10-27T13:09:52","slug":"5-reasons-the-economy-grew-so-much-last-quarter-despite-the-feds-efforts","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=5973","title":{"rendered":"5 reasons the economy grew so much last quarter despite the Fed\u2019s efforts"},"content":{"rendered":"
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\n The US economy wasn\u2019t supposed to expand this much \u2014 or even at all \u2014 after so many rate hikes.\n <\/p>\n

\n But against all odds, the economy grew at an annualized rate of almost 5% last quarter, the Commerce Department reported Thursday. That\u2019s more than double the growth rate the economy experienced last quarter.\n <\/p>\n

\n To combat inflation, which reached a 40-year high of 9.1% in June 2022, the Federal Reserve aggressively raised interest rates to the highest level in 22 years over the span of 10 months.\n <\/p>\n

\n Neither has proven to be the case.\n <\/p>\n

\n By making it more expensive for businesses and consumers to borrow money, those rate hikes were intended to get people to cut back on spending. For a while, many economists feared that the Fed\u2019s rate hikes would climb too high too fast that it would give rise to a recession.\n <\/p>\n

\n \u201cIt\u2019s somewhat mysterious to a degree,\u201d said\ufeff<\/strong> David Beckworth, a senior research fellow at the Mercatus Center at George Mason University. \u201cI expected there to be more damage done to the economy by now given the speed of interest rate increases.\u201d\n <\/p>\n

\n Here\u2019s why the economy has continued to defy expectations:\n <\/p>\n

\n The power of the Fed\u2019s rate hikes is being limited by the many consumers who aren\u2019t getting squeezed by them because they locked in low rates on their mortgages and loans, he said.\n <\/p>\n

\n That\u2019s left them \u201crelatively insulated from high interest rates,\u201d Beckworth, a former economist for the Treasury Department, told CNN.\n <\/p>\n

\n Two years ago, millions of Americans were refinancing their mortgages at 4% or below. Now the average 30-year fixed-rate mortgage is approaching 8%.\n <\/p>\n

\n Another reason the economy grew so much last quarter is people are doing pretty well, all things considered.\n <\/p>\n

\n Although it\u2019s ticked up slightly in recent months, the unemployment rate is close to a half-century low. And the jobs people have are paying a lot more compared to before the pandemic.\n <\/p>\n

\n That combined with some leftover stimulus money has left households with close to $3 trillion more in cash than they had three years ago. That\u2019s according to a quarterly Fed report that tracks how much cash households have on hand.\n <\/p>\n

\n \u201cBecause consumer balance sheets are so strong, it\u2019s enabling a lot of spending,\u201d said Courtney Shupert, an economist at MacroPolicy Perspectives. That was the biggest driver of last month\u2019s economic growth.\n <\/p>\n

\n Workers are becoming more productive, according to second-quarter data from the Labor Department that tracks hourly output per worker. That\u2019s helping grow the economy, Shupert told CNN.\n <\/p>\n

\n Productivity is up as a result of investments that businesses made over the past several years that ramped up even more due to the pandemic and tightness in the labor market, she said.\n <\/p>\n

\n Lower rates of employee turnover is also having an impact, she added. \u201cWe are seeing from earnings reports that after productivity\u00a0was disrupted from high turnover, most teams are now appropriately staffed.\u201d\n <\/p>\n

\n The fact that the economy is so strong in the face of so many rate hikes could be a sign that the Fed hasn\u2019t done enough \u201cto take the heat off the economy,\u201d said Beckworth.\n <\/p>\n

\n That is to say that without more interest rate hikes, there could be a growing risk that inflation will accelerate even more.\n <\/p>\n

\n But on the flip side, there\u2019s also a case to be made to let time tell whether the Fed needs to do more\n <\/p>\n

\n That\u2019s because of what economists refer to as \u201clong and variable lags,\u201d the idea that it takes an unknown, but potentially extensive amount of time before a central bank\u2019s actions are felt throughout the economy.\n <\/p>\n

\n Still, there\u2019s good reason to question Thursday\u2019s gross domestic product figure. That\u2019s not to say that the Commerce Department misreported the US economic growth rate last quarter.\n <\/p>\n

\n But <\/strong>Thursday\u2019s figure is an initial estimate that is subject to two subsequent revisions.\n <\/p>\n

\n Revisions can significantly alter the story the GDP report tells about the state of the economy. For instance, the Commerce Department initially reported economic growth slowed to an annualized rate of 1.1% in the first quarter. However, the figure was revised up to 2%, indicating the economy grew that quarter.\n <\/p>\n

\n The third quarter GDP figure may get revised down, but it\u2019s unlikely to move the needle significantly, said Shupert. \u201cThere\u2019s a lot of underlying strength here.\u201d\n <\/p>\n

\n But there was one potentially big weak spot: inventories.\n <\/p>\n

\n Inventory accumulation picked up so much last quarter that it contributed 1.3 percentage points, or 27%, to GDP growth.\n <\/p>\n

\n EJ Antoni, an economist at the Heritage Foundation, a conservative think tank, took that to be a sign that \u201cfirms stocked up to avoid future price increases.\u201d\n <\/p>\n

\n \u201cThat adds to today\u2019s GDP but subtracts from tomorrow, and doesn\u2019t add to long-run growth,\u201d he said Thursday in a post<\/a> on X. All in all, he views the report as a \u201cclassic case of [a] short but unsustainable burst in economic growth.\u201d\n <\/p>\n<\/p><\/div>\n