U.S. economy accelerated to a strong 4.9% rate last quarter as consumers shrugged off Fed rate hikes

Shoppers look over blankets on sale in a Costco warehouse on Aug. 24, 2023, in Sheridan, Colo. On Thursday, the Commerce Department issued its first of three estimates of how the U.S. economy performed in the third quarter of 2023. …WASHINGTON (AP) — The nation’s economy expanded at a robust 4.9% annual rate from July through September as Americans defied higher prices, rising interest rates and widespread forecasts of a recession to spend at a brisk pace.

Last quarter’s robust growth, though, may prove to be a high-water mark for the economy before a steady slowdown begins in the current October-December quarter and extends into 2024. The breakneck pace is expected to ease as higher long-term borrowing rates, on top of the Federal Reserve’s short-term rate hikes, cool spending by businesses and consumers.

Several Fed officials acknowledged in speeches last week that the most recent economic data showed growth picking up by more than they had expected. Still, most of the policymakers signaled that they will likely keep their key rate, which affects many consumer and business loans, unchanged when they meet next week.

Wages and salaries in the April-June quarter, the latest period for which data is available, rose 1.7% from a year earlier, after adjusting for inflation, according to the Labor Department. That was the fastest quarterly increase in three years. Still, consumers are likely reining in their spending in the final three months of the year, and the sluggish housing market is dragging on the economy as well. This month, nearly 30 million people began repaying several hundred dollars a month in student loans, which could slow their ability to spend. Those loan repayments had been suspended when the pandemic struck three years ago.

If those trends continue, it could allow the Fed to achieve a highly sought-after “soft landing,” in which it would manage to slow inflation to its 2% target without causing a deep recession.

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