US GDP revised lower to settle at 6.9% for the fourth quarter

• Consumer spending, rose to 2.5% in the fourth quarter

The US gross domestic product (GDP) grew at an annualized rate of 6.9% said the Commerce Department in its third estimate of fourth-quarter GDP growth.

The latest figure was revised slightly down from the 7% pace estimated in February. 

GDP grew a slower 2.3% in the third quarter. The revised figure shows that the fourth quarter recorded the strongest economic growth since the third quarter of 2020 when the initial rebound from the lockdown enabled the strongest GDP reading in US history.

Read more: IMF cuts 2022 global growth forecast as slowdowns in US, China to affect economies worldwide

The massive government stimulus spending has helped the GDP increase to 5.7% for the full year making it the largest gain since 1984.

The numbers game

The revision to the fourth-quarter GDP reading reflected downgrades in consumer spending and export growth.

Despite inflation surging to 40-year highs, consumer spending has risen 2.5% in the fourth quarter, down from the previous estimate of 3.1%.

Ongoing shortages of labor and supplies, and spikes in COVID-19 infections could still dampen economic activity for short periods.

The Federal Reserve has raised the interest rates for the first time in four years to combat the spike in prices. The central bank would start shrinking its balance sheet after raising interest rates.

Also Read: Fed approves first interest rate hike in three years, six more to follow

The central bank raised the benchmark rate to roughly 0.375%, up from nearly zero. The interest rate will be raised at least six more times this year to about 1.9%. Powell hinted that, if need be, the interest rate hike could go higher, particularly if inflation does not show signs of cooling in the coming months.

(With inputs from Bureau of Economic Analysis)