U.S. Q4 economic growth surpasses expectations

The Commerce Department's Bureau of Economic Analysis reported a 3.3% annualized growth rate in gross domestic product for the last quarter in its preliminary estimate. This followed a 4.9% expansion in the third quarter. A Reuters poll of economists had projected a 2.0% growth rate, with estimates ranging from 0.8% to 2.8%. The current growth rate exceeds the Fed's non-inflationary growth target of around 1.8%.

Last year's acceleration from 1.9% in 2022 surprised industry leaders and economists who had anticipated a downturn since mid-2022. The economy's resilience is partly due to a strong labor market characterized by low layoffs and significant wage increases, supporting consumer spending.

In a separate report on Thursday, the Labor Department stated that initial claims for state unemployment benefits rose by 25,000 to a seasonally adjusted 214,000 for the week ending January 20, compared to the forecasted 200,000 claims.

Government spending increases and near-zero interest rates during the COVID-19 pandemic have also played a role in averting a recession, allowing some corporations and households to secure low rates.

Economists, who had largely based their pessimistic forecasts on the Fed's rapid rate hikes to curb demand, are now revising their recession predictions and expecting slower growth this year. The Fed, meeting next week, is expected to maintain its policy rate at the current 5.25%-5.50% range.

With the GDP report indicating easing inflation pressures last quarter, the central bank is widely expected to start reducing rates in the first half of this year. Since March 2022, the Fed has increased its benchmark overnight rate by 525 basis points.