The collapse of the US housing market caused the economy almost to stall at the end of the last year but prices continued to surge, increasing the threat of stagflation. The economy grew at a 0.6 per cent annual rate in the last three months of the year, according to the first revision of the government’s fourth-quarter estimate of gross domestic product, unchanged from its previous forecast reports the Financial Times.
This compared with growth of 4.9 per cent in the third quarter and came as a disappointment to economists who had forecast a slight uptick to 0.8 per cent. For the whole of 2007, GDP rose by only 2.2 per cent, the weakest since 2002.
Fourth-quarter personal consumption expenditure was revised higher to an annualized 4.1 per cent from 3.9 per cent, although core expenditure, which strips out volatile food and energy purchases, held steady at 2.7 per cent.
The combination of increased pricing pressures and near dormant growth poses an unpalatable policy dilemma for the Federal Reserve which cannot use monetary policy to tackle both simultaneously.
Fed chairman Ben Bernanke signaled on Thursday in his testimony on Capitol Hill that that he remains prepared to keep cutting interest rates, in spite of the threat of inflation.
Read it here: US Economy close to stalling in Fourth Quarter