The slowdown reflects the impact of the Fed’s aggressive drive to tame inflation.
Thursday’s estimate from the Commerce Department showed that the nation’s gross domestic product weakened after growing 3.2% from July through September and 2.6% from October through November. | Matt Rourke/AP PhotoThe U.S. economy slowed sharply from January through March, decelerating to just a 1.1% annual pace as higher interest rates hammered the housing market and businesses reduced inventories.
The housing market, which is especially vulnerable to higher loan rates, has been battered. Consumer spending, which fuels roughly 70% of the entire economy, has softened. And many banks have tightened their lending standards since the failure last month of two major U.S. banks, making it even harder to borrow to buy a house or a car or to expand a business.
The Conference Board’s recession-probability gauge had hung around zero from September 2020, as the economy rebounded explosively from the COVID-19 recession, until March 2022, when the Fed started raising rates to fight inflation. Political risks are growing, too. Congressional Republicans are threatening to let the federal government default on its debts, by refusing to raise the statutory limit on what it can borrow, if Democrats and President Joe Biden fail to agree to spending restrictions and cuts. A first-ever default on the federal debt would shatter the market for U.S. Treasurys — the world’s biggest — and possibly cause a global financial crisis.
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