US Economy Slowed in 2022, Federal Reserve to Continue Rate Hikes

The U.S. economy experienced a sharp slowdown in 2022, with real GDP increasing 2.1 percent for the year. This was a substantial decrease from the 5.9 percent growth in 2021, yet still impressive considering the challenges the economy faced – the highest inflation in 40 years, and Federal Reserve rate hikes to combat price pressures.[0]

Data from the Bureau of Economic Analysis (BEA) showed that the US economy grew at an annualized rate of 2.9 percent in the fourth quarter of 2022. This was slightly higher than the 2.6 percent expected by economists, but a noticeable decline from the 3.2 percent rate in the third quarter.[1] This was driven by increases in private inventory investment, consumer spending, government spending, and nonresidential fixed investment.[2]

Unfortunately, growth was not uniform across the board. Residential investment fell off a cliff, dropping 26.7 percent, indicating that consumers were unable to afford the combination of high home prices, high interest rates and falling real incomes.[2] This drag on the growth number subtracted about 1.3 percentage points from the headline GDP number.

Inflation is still high, and the Federal Reserve is expected to hike rates by another 25 basis points next week.[3] This would be the fourth consecutive rate hike, as the Fed attempts to tame inflation.

Americans’ personal income increased by $311 billion in the fourth quarter, up from an increase of $283.1 billion in the third quarter.[4] However, real disposable income fell over $1 trillion in 2022, making it the second-largest percentage drop in real disposable income ever, behind only 1932 – the worst year of the Great Depression.[5]

The US jobless claims also decreased in the week ending January 21, with initial claims for unemployment insurance totaling 186,000 after seasonal adjustments – down 6,000 from the previous week’s total of 190,000.[6] This suggests that the labor market is still resilient despite the economic slowdown.

Overall, the US economy is showing signs of slowing, with the effects of higher interest rates yet to be felt fully.[7] It remains to be seen if the Federal Reserve will issue another interest rate hike, and at what rate, as it continues its battle with persistent inflation.[8]

0. “Residential Investment Continued to Hold Back the US economy in the Fourth Quarter” Zillow Research, 26 Jan. 2023, https://www.zillow.com/research/economic-growth-slowed-in-2022-32046/

1. “US GDP grew 2.9% in Q4 2022, above estimate” Business Insider, 26 Jan. 2023, https://www.businessinsider.com/us-gdp-in-q4-2022-recession-economic-outlook-2023-1

2. “U.S. GDP rose 2.9% in the fourth quarter, more than expected even as recession fears loom” CNBC, 26 Jan. 2023, https://www.cnbc.com/2023/01/26/gdp-q4-2022-us-gdp-rose-2point9percent-in-the-fourth-quarter-more-than-expected-even-as-recession-fears-loom.html

3. “U.S. economy grew a sturdy 2.9% at the end of 2022, GDP shows — but don’t look for a repeat soon” MarketWatch, 26 Jan. 2023, https://www.marketwatch.com/story/u-s-economy-grew-a-sturdy-2-9-at-the-end-of-2022-gdp-shows-but-dont-look-for-a-repeat-soon-11674740015

4. “GDP increased in the 4th quarter, easing recession fears” Fox Business, 27 Jan. 2023, https://www.foxbusiness.com/personal-finance/gdp-4th-quarter-2022-recession

5. “U.S. economy grew by 2.9% in Q4 – Commerce Department By Investing.com” Investing.com, 26 Jan. 2023, https://www.investing.com/news/economic-indicators/us-economy-grew-by-29-in-q4–commerce-department-2988975

6. “On The Money — How the economy defied recession fears in 2022” The Hill, 27 Jan. 2023, https://thehill.com/policy/finance/overnights/3832474-on-the-money-how-the-economy-defied-recession-fears-in-2022/

7. “US Economy Cools Like the Fed Wants, Still Risks a Stall in 2023” Yahoo! Voices, 26 Jan. 2023, https://www.yahoo.com/now/us-gdp-expands-healthy-2-135616908.html

8. “Triangle businesses exude confidence as growth domestic product continues grow” WTVD-TV, 26 Jan. 2023, https://abc11.com/economy-nc-businesses-confidence-business-owners-gdp/12738876/