The U.S. economy ended last year on a solid footing despite the pressure of high interest rates and widespread fears of a looming recession.
The Gross Domestic Product — the sum of all goods and services that make up the economy — expanded at a 2.9% annual pace from October through December of 2022, the Commerce Department said Thursday. For the year overall, GDP grew 2.1%.
Thursday's estimate showed that the economy slowed last quarter from the 3.2% annual growth rate it had posted from July through September.
Most economists think the economy will slow further in the current quarter and slide into at least a mild recession by midyear.
The housing market, which is especially vulnerable to higher loan rates, has already been badly bruised: Sales of existing homes have dropped for 11 straight months.
And consumer spending, which fuels roughly 70% of the entire economy, is likely to soften in the months ahead, along with the still-resilient job market.
"Consumer spending — the economy's main growth engine — is expected to weaken as income growth softens and households can no longer rely on excess savings to maintain their desired pace of spending," economists at Oxford Economics said in a note. More interest-rate hikes on the way
The economy's expected slowdown is a planned consequence of the Federal Reserve's aggressive series of rate hikes.
The Fed raised its benchmark rate seven times last year in a bid to reduce growth, cool spending and crush the worst inflation bout in four decades. It is set to do rate hikes again when it meets next week, though this time by a smaller amount.
Inflation remains stubbornly high even though it has been gradually easing. Year-over-year inflation was raging at a 9.1% rate in June, a 40-year high. It has since cooled — to 6.5% in December — but is still far above the Fed's 2% annual target.