by The Gould Asset Management Team

Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the First Quarter of 2023. The excerpt is posted here for the benefit of our blog subscribers.

US Growth Intact but Risks Remain

The US economy grew at a 2.6% annualized rate in the fourth quarter. First quarter consumer spending picked up, but higher interest rates (to fight still high inflation) and a slowing
manufacturing sector are headwinds as we enter the second quarter of 2023. 

The labor market remains robust as employers continued to add jobs and more people entered the workforce. Unemployment dropped to 3.5% in March and labor force participation ticked up
to 62.6%. Additionally, wage pressure appears to be easing with year over year wage gains slowing to 4.2% in March.

Consumer spending increased at its fastest pace in nearly two years in January, followed by moderate growth in February. First quarter activity so far points to a healthy consumer segment
after sluggish spending in the fourth quarter.

Fed Hikes Rates Despite Banking Turmoil

The Federal Reserve raised the federal funds rate by 0.25% twice in the first quarter despite elevated stress in the regional banking sector. Fed Chair Powell reiterated the Fed’s
commitment to restoring price stability and asserted the banking sector is sound and resilient.

Fed Chair Powell also acknowledged the recent banking turmoil will likely tighten credit conditions for businesses and households, meaning there could be less of a need to raise
interest rates going forward.

Updated Fed projections show the federal funds rate topping out at 5.1% by year end, implying one more 0.25% rate hike. GDP growth for 2023 is expected to expand 0.4%, little changed from the previous projection.

To continue reading, please see our entire Economic and Market Review.