Strong Growth Report Will Allow Federal Reserve to Stay the Course on Fighting Inflation

The Department of Commerce’s Bureau of Economic Analysis released a report today showing the U.S. economy grew by 2.5 percent in 2023. Gross domestic product (GDP) grew by 3.3 percent in the fourth quarter of last year, outpacing market expectations.

CEI Senior Economist Ryan Young said:

“As expected, the third quarter’s rapid 4.9 percent GDP growth was a fluke. The good news is that the fourth quarter stayed strong at 3.3 percent. For context, GDP growth has averaged just over 2 percent for the last century or so.

“This is good news for inflation hawks. Strong growth plus full employment gives the Fed plenty of room to stay the course on fighting inflation. It also helps them resist political pressure to stimulate the economy to help this year’s election, since the economy is already quite stimulated.

“While some of the GDP increase was driven by higher government spending, one thing to look out for is industrial policy bubbles beginning to pop. Consumers are happily spending money, but not on EVs, despite all the subsidies, tax breaks, and other special treatment. Permits and regulatory problems are delaying infrastructure and renewable energy projects.

“The economy is not in perfect shape, but it is in good shape. It will continue to absorb losses from stimulus boondoggles, and markets will continue to be wary of inflation. But the economy’s fundamentals are strong, and barring another crisis spending spree, things look good for the near term.”

Read more from CEI:

• Young: More to inflation story than meets the eye: CEI analysis
• Young: Federal Reserve to cut interest rates next year?