Economic growth in the U.S. has slowed significantly in 2022, and that slow growth is expected to continue into next year. After shrinking slightly in the first half of this year, real gross domestic product rebounded in the third quarter to a 2.6% annual growth rate. However, according to Christopher J. Waller, a member of the Federal Reserve Board of Governors, this was just a temporary boost, and weak growth has returned in the last quarter of 2022 and will persist into 2023.
Consumer and business spending has softened, amid deteriorating business sentiment in most sectors of the economy, Waller said at the 59th Annual Economic Forecast Luncheon, Phoenix on Nov. 16. It’s not hard to understand why: inflation remains high, which people notice every day at the gas pumps and grocery stores. Further, as the Fed tries to curb inflation to its 2% target, it has raised interest rates, which raises borrowing costs for businesses and consumers alike.
Inflation is the result of pent-up demand arising from after COVID-related lockdowns, supply chain issues, increased labor costs, and rising gas prices, among other factors. Stimulus money put more cash in the hands of consumers, who naturally spent it, thereby spurring inflation. The slowed economic growth is a sign that the monetary policy of raising interest rates, which has been in effect since late 2021, is beginning to work but will take time.
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