US GDP: Too High Growth a Danger Sign


 US Economy Grows 4.9% In Third Quarter 2023, Highest Growth Since 2021

The release of US GDP economic data yesterday has recorded a very high economic growth figure since 2021.

Based on the statistics that have been released, the consumer sector is seen as the main contributor to economic growth in the US in the last third quarter.

In addition, the "personal spending" component has been recorded to have increased by 4%, the highest since 2021.

Economic Indicators Actual Data Expected Data

GDP +4.9% +4.5%

Personal consumption +4% +4%

PCE price index, excluding food and energy +2.4% +2.5%

Too High GDP Growth is a Danger Sign

High economic growth is basically a positive sign of economic strength in a country.

However, with the situation of inflationary pressure facing the United States, this drastic economic growth is a clear warning sign against the pressure of rising inflation rates.

As you already know, the drastic growth of GDP in America has been contributed by the "consumer" sector where people's spending in the country has increased dramatically. This follows the labor market situation in the country which was positive throughout the third quarter.

Causes of Increase in Inflation Readings

Inflation occurs when the price of consumer goods increases. It means that the cost of goods in a country increases.

A price increase occurs if the aggregate demand for goods exceeds the aggregate supply. When consumers realize that the product they want is in short supply, they are willing to pay a higher price.

There are two reasons for the price increase:

1. An increase in aggregate demand or

2. A decrease in the supply of goods.

Both have similar consequences for the overall price level but different effects on gross domestic product (GDP/GDP).

Federal Reserves expectations

The strength of the economy in the fourth quarter of 2023 will be an important point for the Fed to determine the direction of interest rate hikes in 2024.

Whether they are willing to maintain the existing interest rate for longer or implement a reduction in interest rates. However, if inflation is still above 2%, interest rates are expected to remain the same.

The US economic growth report for the third quarter that was released yesterday is seen not to be the main trigger for interest rate hikes to be announced at next week's FOMC meeting.

But it will be a strong proof that the Fed will maintain the existing interest rate at 5.50% for a long period (higher for longer).