Closing summary: US tries to pilot to economic soft landing
The US GDP figures show that the world’s largest economy is still humming. The Federal Reserve must decide if it thinks that inflationary pressures are still present, or if the recent strength will prove to be a peak.
If economic activity has peaked, then the Fed will want to engineer the fabled soft landing: a cooling economy without a recession. That would also help the White House in 2024, an election year.
Richard Flax, chief investment officer at Moneyfarm, a wealth manager, said:
While the GDP growth estimates were revised higher, price indicators were revised lower, with the personal consumption expenditure price indicator rising 2.8% versus a preliminary estimate of 2.9%.
Today’s figures prove that despite the Federal Reserve having raised its benchmark interest rates 11 times since March 2022, the US economy remains resilient, even as inflation has begun to slow. As we move into 2024, the focus will now be on when the Federal Reserve feels comfortable in reducing rates as it tries to pilot the US economy towards a soft landing.
In other business news today:
The competition watchdog is launching an investigation into the baby formula market after finding manufacturers raised prices by 25% in two years and managed to increase profit margins during the cost of living crisis.
The regulator will also investigate the effect on consumers of the rise of loyalty card price cuts amid concerns that they could limit competition and lead to price rises for shoppers not signed up to such marketing schemes.
A group of MPs including the former Conservative party leader Iain Duncan Smith have asked ministers to use national security law to investigate the Barclay family’s proposed deal to give control of the Daily Telegraph to a consortium backed by the United Arab Emirates.
Continued tough action by central banks to tackle stubborn inflation risks tipping Britain and other developed countries into recession next year, the west’s leading economic thinktank has warned.
Saudi Arabia’s sovereign wealth fund has taken a 10% stake in Heathrow for £1bn from the Spanish infrastructure company Ferrovial, which is selling off its holding in Europe’s biggest airport after 17 years.
You can continue to follow the Guardian’s live coverage from around the world:
In the UK, Jeremy Hunt questioned by Treasury committee about autumn statement
In Europe, Turkish foreign minister told Sweden its Nato bid will be ratified ‘within weeks’
In the US, George Santos says he won’t resign from Congress as House expulsion vote looms
In our coverage of the Russia-Ukraine war, the Nato chief warns the west not to underestimate Putin
In our coverage of the Israel-Hamas war, efforts to extend ceasefire continue as deadline nears
Thank you for reading today, and do join Graeme Wearden tomorrow for much more. JJ
It will take more than a few rate hikes to tip up the US economy, if the third-quarter data is any guide.
Lindsay James, an investment strategist at Quilter Investors, said:
Today’s US GDP revision for the third quarter shows an economy that keeps on rolling, despite the continued rate hikes and the risks that were spelled out from the OECD today.
Compared to the second quarter, the US consumer is showing surprising resilience with spending called out by the Bureau of Economic Analysis as boosting the level of growth. Disposable incomes have increased by 0.1% in Q3 – much slower than the 3.5% growth seen in Q2 but nevertheless much better than the contraction pencilled into early Q3 estimates.
James highlighted that the Organisation for Economic Co-operation and Development has predicted a soft landing – avoiding a recession – for the US economy. It raised its forecasts for 2024 from 1% to 1.3%. She said:
The US economy is showing serious resilience in the face of strong economic headwinds. Ultimately this underlines the message from central banks of interest rates being ‘higher for longer’, and it will be some time before the Federal Reserve feels like it is in a position to cut.
