US Q3 GDP Growth Rate Shows Limited Impact from Monetary Policy...Possibility of Prolonged High Interest Rates Increases

Gukgeum Center "Entering Mild Economic Slowdown After Q4"

The U.S. real Gross Domestic Product (GDP) growth rate for the third quarter of this year came in at 4.9% (quarter-on-quarter annualized), surpassing market expectations. While the short-term impact on monetary policy is limited, the still robust demand is increasing the likelihood of prolonged high interest rates, according to an analysis.

The Center for International Finance recently stated in its report titled "Evaluation of U.S. Q3 GDP Growth Rate and Future Outlook" that "With the Federal Open Market Committee (FOMC) expected to keep interest rates unchanged in November, this indicator showed that private demand and core inflation?key focuses of the Federal Reserve (Fed)?were in line with or below expectations, thus limiting the impact on monetary policy."

The report suggested that strong private demand was evident, with U.S. consumption and investment significantly driving growth in the third quarter, although the influence of highly volatile inventory investment was also considerable.

In particular, private consumption increased substantially in both goods and services, indicating that consumption remains robust despite high interest rates.

Additionally, the report analyzed that the significant rise in volatile inventory investment led the upside surprise in this growth rate. Federal government defense spending drove the expansion in government expenditure, while net exports contracted slightly as the increase in imports slightly outpaced that of exports.

Jeong Yeji, a researcher at the Center for International Finance, said, "Although the higher-than-expected growth rate and stabilization of core inflation have strengthened expectations for a soft landing of the U.S. economy, it is highly likely that the economy will enter a mild slowdown from the fourth quarter onward due to weakening consumption and investment effects caused by high oil prices and high interest rates."

Considering that much of the upside surprise was due to inventory investment, along with consumption constraints such as the resumption of student loan repayments and rising credit card delinquency rates, it is expected that sustaining the high growth rate seen in the third quarter will be difficult.

However, Researcher Jeong noted, "The private demand (PDFS), which is evaluated as a stronger leading indicator of future growth potential than the headline growth rate, remains robust, indicating that upside risks to the future growth path still exist."

Major investment banks (IBs) anticipate that the U.S. growth momentum will weaken starting from the fourth quarter of this year due to the effects of monetary tightening, forecasting an economic slowdown in the first half of next year.

The Center for International Finance added, "Despite the upside surprise in the third-quarter growth rate, the short-term impact on monetary policy is expected to be limited. However, the still robust demand suggests a delay in the manifestation of monetary tightening effects, increasing the possibility of prolonged high interest rates."