US economy grew at 3.3% rate in fourth quarter

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The US economy grew at a 3.3 per cent annualised rate during the final quarter of last year, capping off a strong 2023 that defied recession fears.

The fourth-quarter growth rate was slower than the 4.9 per cent of the previous three months, but substantially higher than economists’ estimates. The 3.1 per cent figure for annual growth in gross domestic product also beat expectations.

US stocks and bond markets rallied on the data, as investors focused on figures showing that inflation appeared to be coming under control.

Consumer prices rose at an annual rate of 1.7 per cent in the fourth quarter, down from 2.6 per cent three months earlier.

“Core” PCE inflation, which strips out volatile food and energy costs, remained at the Federal Reserve’s 2 per cent goal during the period.

The figures add to evidence that the US economy has shown remarkable resilience in the face of the Fed’s lengthy campaign of high interest rates, paving the way for possible rate cuts in the coming months.

It also suggests the central bank may be on course to pull off a so-called soft landing, in which inflation is tamed without triggering a recession.

“This GDP reading cements America’s position as the dominant driver of global growth,” said Eswar Prasad, an economics professor at Cornell University.

He added that the US’s “unexpected standout performance is the economic story of 2023 and a positive omen for what is otherwise shaping up as a gloomy year ahead for global growth”.

The figures come as central banks contemplate cutting rates in the coming months as inflation comes closer to their 2 per cent target.

On Thursday the European Central Bank said it would hold eurozone rates steady at a record high of 4 per cent, but noted that inflation was falling in line with its expectations.

In the press conference following the decision, ECB president Christine Lagarde said that the pick-up in inflation in December had been “weaker than expected” and forecast that price pressures would “ease further over the course of the year”.

Following the US GDP data release, US Treasuries extended the session’s rally, with the yield on the policy-sensitive two-year note down 0.04 percentage points to 4.34 per cent.

Wall Street’s S&P 500 was up 0.4 per cent shortly after Thursday’s opening bell, giving the benchmark index a chance at notching its fifth record high close in a row. The tech-heavy Nasdaq Composite gained 0.5 per cent.

Additional reporting by Stephanie Stacey and George Steer in London