People listen as President Joe Biden speaks about his administration’s economic agenda at Prince George’s Community College, Center for the Performing Arts, Sept. 14, 2023, in Largo, Md. | Alex Brandon/AP
A blowout gross domestic product report on Thursday showed the economy surged over the summer, driven in part by consumer spending.
The 4.9 percent increase in GDP is a great headline for “Bidenomics” at a time when voters just aren’t buying what the president has done for their bank accounts.
But economists predict this may be as good as it gets for the near future — and some fear it may spur the Federal Reserve to do more to slow growth and fight inflation. Here’s a breakdown:
What economists expected
It beat some economists’ expectations but fell short of others. The Federal Reserve Bank of Atlanta’s “GDPNow” model had estimated that the economy grew 5.4 percent in the third quarter.
Still, the number showed the economy expanded at its fastest rate in nearly two years.
“The U.S. economy’s resilience will likely be on full display,” Wells Fargo economists said before the release.
Along those lines, the Treasury Department released a report Thursday that said the U.S. economy has not only outperformed expectations this year but has also helped support the global outlook.
“The progress we have made on growth, labor markets and inflation stands out across the globe, and remains an important source of strength for the global economy,” Treasury acting assistant secretary Eric Van Nostrand and deputy assistant secretary Tara Sinclair said.
Sounds great! Are voters feeling it?
If they are, they’re not giving President Joe Biden much credit. His economic approval ratings are still in the red by double digits, including his handling of inflation. More than half of the people surveyed in an Oct. 21-24 Economist/YouGov poll said the economy is getting worse.
What could go wrong?
Economists are expecting growth to slow heading into next year.
Borrowing costs are rising, pandemic financial buffers are being drawn down and student loans are coming due – not to mention the hot wars playing out in the Middle East and Ukraine. The talk among CEOs is that they aren’t thrilled about what’s in store for the economy next year.
It underscores that the third-quarter GDP number may be stellar, but it’s a dated snapshot.
The question then becomes: To what extent will Jerome Powell’s data-driven Fed take action based on the new stat, which could suggest more work is needed to head off inflation? The Fed is expected to hold interest rates steady when it meets next week.
“That’s where I constantly feel this tension between the Fed having been and continuing to be extremely data dependent — and backward-looking as a result — versus what would be optimal in the current environment, which is a forward-looking perspective,” EY-Parthenon chief economist Gregory Daco said Wednesday.
The key issue, according to Daco, is whether consumers and business leaders still have the buffers they need to keep spending into 2024 amid a persistently high-cost, high-interest rate environment.
“The answer to that question, in my opinion, is no,” he said. “But depending on how you respond to that question, you’re going to want to be more or less hawkish in terms of monetary policy.”
