The US economic growth rate in the fourth quarter maintained its initial forecast, as inflation accelerated, according to a second estimate released by the Bureau of Economic Analysis. Real gross domestic product (GDP) rose at an annualized rate of 2.3% in the December quarter, consistent with the advance estimate by the BEA and a Bloomberg-compiled consensus.
This follows an increase of 3.1% in the third quarter and 2.8% in 2024. Admir Kolaj, an economist at TD Economics, remarked on the second reading of fourth-quarter US GDP, stating that it reflected only modest revisions and underscored the robustness of economic activity at the end of the previous year.
'The consumer continued to drive growth, while government spending and residential investment also contributed significantly.' For personal consumption expenditures, the growth rate remained solid at 4.2% for the fourth quarter, surpassing Wall Street's anticipated 4.1% gain. The headline measure of PCE inflation increased to 2.4% in the quarter, up from the initially estimated 2.3%.
Additionally, core PCE inflation—excluding the often volatile food and energy sectors—quickened to 2.7% from a previous 2.5%, reflecting broader inflationary pressures. Looking ahead to 2025, there remains considerable uncertainty tied to tariffs and other policy measures. Nevertheless, Kolaj expressed optimism that the US economy is poised for another solid year, predicting a modest easing of growth to 2.4%.
In a related note, President Donald Trump announced that the proposed 25% tariffs on imports from Mexico and Canada will take effect on Tuesday, with China facing an added 10% tariff on the same date. Previously, Trump had paused the tariffs on Mexico and Canada for one month. Friday's survey from the University of Michigan revealed a decline in US consumer sentiment during February, with inflation expectations for the year ahead reaching their highest point since November 2023.
Minutes from the Federal Reserve's January monetary policy meeting illustrated the central bank's cautious approach, indicating that policymakers are keen to see inflation rates decrease further before considering additional interest rate cuts. The potential impacts of trade and immigration policy changes were noted as potential hindrances to the disinflation process.
At this January meeting, the Federal Open Market Committee opted to keep its benchmark lending rate unchanged following three consecutive rate cuts..