Separate data released on Thursday showed consumer prices rose at an annual rate of 1.7 per cent in the fourth quarter, down from 2.6 per cent three months earlier.
The twin sets of data suggest the economy is headed for a “soft landing”, in which inflation is tamed without triggering a recession.
The numbers will also be a boost for Biden ahead of November’s presidential election, as his strategists try to reverse widespread public dissatisfaction with his handling of the economy that has cast a cloud over his re-election hopes.
The most recent Financial Times-Michigan Ross poll showed 60 per cent of voters surveyed disapproved of Biden’s stewardship of the economy, with lingering high prices for staple goods featuring among respondents’ complaints.
The White House has been desperate to reverse those perceptions, touting a boom in capital investment and job creation in the past year, while Republican Donald Trump has made the recent bout of high inflation core to his populist election campaign.
Janet Yellen, the US Treasury secretary, said in Chicago on Thursday afternoon that it was the administration’s measures to boost the economy that had sparked a revival “that is remarkable for both its speed and its fairness”.
“Though some forecasters thought a recession last year was inevitable, President Biden and I did not,” Yellen said. “Instead of contracting, the economy has continued to grow, driven by American workers and President Biden’s economic strategy.”
While the pace of growth in the fourth quarter cooled from the breakneck 4.9 per cent rate set in the previous three months, it was far higher than economists had expected. The 3.1 per cent expansion for the year as a whole also beat forecasts.
US stocks and bond prices moved slightly higher Thursday after the news, with the S&P 500 up 0.1 per cent in mid-afternoon trading in New York. US Treasuries extended the session’s rally, with the yield on the policy-sensitive two-year note down 0.05 percentage points to 4.33 per cent.
Prasad said the good numbers from the US contrasted with bleaker outlook elsewhere in the global economy.
This “unexpected standout performance is the economic story of 2023 and a positive omen for what is otherwise shaping up as a gloomy year ahead for global growth”, he said.
Yellen said the US’s strong performance was “the fastest on record” — and more than just a post-pandemic rebound.
“We have also focused on unsnarling supply chains and bringing more Americans into the labour force.”
Yellen’s speech in Chicago comes as she prepares for a number of events designed to change American voters’ perceptions of Bidenomics in the run-up to November.
Thursday’s GDP and inflation figures come as other central banks weigh when to cut rates this year as inflation begins to home in on their 2 per cent target.
The European Central Bank on Thursday said it would hold eurozone rates steady at a record high of 4 per cent, but noted inflation was falling in line with its expectations, despite a rise in December.
In the press conference following the decision, ECB president Christine Lagarde said the rise in European inflation in December had been “weaker than expected” and forecast price pressures would “ease further over the course of the year”.
Additional reporting by Stephanie Stacey and George Steer in London
Written by: Claire Jones in Chicago and James Politi in Washington.
© Financial Times
