What makes the Federal Reserve’s plans to cut interest rates next year so Scrooge-like is how strong the economy is right now. The most recent report on GDP over the summer is another warning.
In the third quarter, the U.S. economy grew at a very fast 3.1% yearly rate, and it looks like that will happen again in the last three months of the year.
Gross domestic product, which is the economy’s official rating, went up from 2.8% to 2.9% after the government got new data.
In each of the last two quarters, the U.S. economy has grown by at least 3%.
Even better, the most recent predictions say that GDP will go over 3% in the fourth quarter as well.
If you don’t count the rebound from the pandemic, this would be the first time since 2014 that GDP has grown by 3% for three quarters in a row.
The bad thing? Less rate cuts from the Fed in 2025.
Oren Klachkin, a financial markets economist at Nationwide, said, “One of the unwelcome side effects of a strong economy is that policy rate cuts are not needed as quickly.” “The Fed’s announcement yesterday seems to have made investors more aware of this possibility.”
In any case, spending by consumers has been the main thing that has been making the economy grow. In the third quarter, household spending rose from 3.5% to 3.7% per year.
Exports from the U.S. were also better.
People in the US aren’t spending more just because prices are going up. Inflation is taken into account when calculating GDP so that it has almost no effect on the numbers.
People spent more money on services and bought more cars and other durable things.
This is what has caused people to spend so much:
- Rising inflation-adjusted incomes, which have eased some of the pain from higher prices.
- Low unemployment and stable job security.
- A big surge in prices of assets such as homes and stocks. That’s especially helped to pad the spending of upper-income households.
Economists say that the spending has cost money. Families with less money are having a harder time paying their bills and need to borrow more to get by. As a sign of that stress, the number of late payments is going up.
Even so, economists on Wall Street SPX -0.04% think the economy will grow faster than usual in 2025 as well.
