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US GDP Growth Shows Strength in Fourth Quarter
02 Sept 2025
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US GDP Growth for Fourth Quarter
As of September 2025, the U.S. economy is projected to experience a significant slowdown in the fourth quarter. Analysts anticipate GDP growth to decelerate to approximately 1% in Q4 2025, down from 2.3% in Q4 2024 . This downturn is attributed to several factors, including reduced consumer spending, declining business investment, and the impact of elevated tariffs on imports.
The Federal Reserve's monetary policy, aimed at controlling inflation, may also contribute to the economic deceleration. Despite these challenges, a recession is not currently anticipated, though the situation remains fluid and subject to change.
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Drivers for 2.9% US GDP Growth in Q4CY24
The U.S. economy demonstrated resilience in the fourth quarter of 2024, achieving a 2.3% annualized growth rate. Key contributors to this performance included:
Consumer Spending: Robust consumer expenditure increased by 4.2%, driven by higher wages, a strong holiday season, and increased demand for services like healthcare and travel.
Government Expenditures: Government spending rose by 3.2%, bolstered by increased compensation for state and local employees.
Business Investment: Nonresidential fixed investment grew by 2.4%, with notable gains in intellectual property products and equipment.
Trade Balance: Exports of goods and services increased by 3.2%, while imports declined by 1.2%, contributing positively to GDP growth.
Inflation Control: The Personal Consumption Expenditures (PCE) price index rose by 2.3%, aligning closely with the Federal Reserve's target, indicating stable inflation .
These factors collectively supported the U.S. economy's growth in Q4 2024, despite challenges such as declining business investment and trade deficits.
What does GDP Data Mean for Fed Rate Stance?
GDP Growth Signals Economy’s Health: Strong GDP growth indicates a robust economy, which may prompt the Fed to raise rates to prevent overheating and control inflation.
Weak or Slowing GDP May Lead to Rate Cuts: If GDP growth slows or contracts, the Fed might lower rates to stimulate economic activity and encourage borrowing and spending.
Inflation Expectations are Key: High GDP growth can raise inflation fears, pushing the Fed toward tightening (raising rates), while low growth may ease inflation concerns, allowing for a more accommodative stance.
GDP Influences Fed’s Forward Guidance: The Fed closely monitors GDP trends to guide its future policy statements, signaling whether rates will rise, hold steady, or fall.
Lagging vs. Leading Indicator: GDP data is often backward-looking; the Fed also considers other real-time data and economic indicators alongside GDP to make timely decisions on rates.
