The Fed did not stop GDP growth

Bureau of Economic Analysis announced today that seasonally adjusted U.S. real GDP rose 2.9% year-on-year in the third quarter. This makes two quarters in a row close to the historical average, a welcome relief from the moderately negative growth we started with last year.

Year-on-year real GDP growth, 1947: Q2-2022: Q4, with historical average (3.1%) in blue. Calculated as 400 times the natural logarithm of GDP compared to the previous quarter.

New data called Ecobrowser recession indicator index decline to 8.3%, removing the warning signal of the previous two quarters. This is an assessment of the situation in the economy in the previous quarter (namely 2022:Q3). Although some observers believed that a recession could have begun in the US last year, the facts did not support their pessimism.

Index of recession indicator based on GDP. The charted value for each date is based solely on GDP data that was publicly available as of one quarter after the date shown, with 2022:Q3 being the last date shown on the chart. The shaded areas represent NBER recession dates that were not used in any way in the construction of the index.

However, all is not well with the housing sector, which is the epicenter of the Fed’s war on inflation. The fall in new home construction has subtracted an average of 1.2% from the annual GDP growth rate during each of the past three quarters. The increase in interest rates by the Fed is definitely holding back growth.

The yield curve suggests that the market is betting on one or two additional modest rate hikes from the Fed, but by the end of the year it will reverse course and cut rates.