The U.S. economy experienced robust growth in the fourth quarter of 2023, outpacing earlier expectations by a significant margin.

The latest GDP report released Thursday revealed the U.S. economy expanded by 3.3% in the final quarter of the year, defying predictions of a more modest 2% rise.

Here are key takeaways from economists on the new data:

  1. 'Growth Slowing But Still Robust' Jeffrey Roach, chief economist for LPL Financial, said the fourth-quarter GDP reading shows that "growth slowing but [is] still robust." The leading contributors to this growth were consumer spending, government spending and net exports, he said. Roach noted the personal savings rate dipped to 4% as consumers used their savings to fuel spending. Looking ahead, Roach said that growth in 2024 might continue to slow, but the labor market's performance will be crucial for maintaining economic stability.
  2. 'Meaningfully Stronger Growth' Mark Zandi, chief economist at Moody's Analytics, weighed in on the surprising fourth-quarter GDP growth, noting that it was "meaningfully stronger than expected." He highlighted that not only did consumers spend and businesses invest more as anticipated, but trade and inventories unexpectedly contributed to growth. Despite the robust growth, Zandi said inflation remained tame, with the core consumer expenditure deflator at 2%, exactly matching the Fed's target.
  3. 'Fed To Hold Out On Rate Cuts' Charlie Ripley, senior investment strategist for Allianz Investment Management, said the fourth-quarter GDP data suggests the U.S. economy remains resilient, which could deter the Federal Reserve from enacting rate cuts in the near future. Despite higher-than-expected initial jobless claims, Ripley emphasized that economic data continues to surprise on the upside, showcasing the economy's strength.
  4. 'A Perfect Mix Of Strong Consumption And Lower Inflation' Jamie Cox, managing partner for Harris Financial Group, described the fourth-quarter GDP data as "the perfect mix of strong consumption and dropping inflation," suggesting that it aligns with the Fed's goals of lowering interest rates. He summarized the situation as a "soft landing" scenario, indicating a smooth economic transition.
  5. 'Prices Are Too High' According to Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, prices are still too high and there are signs of weakness in the job market, "but despite all of that, the U.S. economy is expanding at a rapid pace." He noted the positive cycle of full employment and consumer spending as the key factor behind the strong growth.
  6. 'Personal Consumption Drives Growth' Nathaniel Casey, investment strategist at Evelyn Partners, attributed the fourth-quarter GDP growth to the resilient U.S. consumer, even in the face of higher interest rates, with strong retail sales during the holiday period. He underlined the significance of the robust labor market in supporting consumer spending and overall economic growth, with low unemployment rates and subdued initial jobless claims contributing to consumer confidence.
Market Reactions: The U.S. dollar rose 0.3% Thursday, buoyed by both the stronger-than-expected GDP data and the euro's negative reaction to the European Central Bank meeting, which highlighted growth risks for the euro area. Treasury yields softened and bonds rose, with the iShares 20+ Year Treasury Bond ETF (TLT  ) up 0.8%. The SPDR S&P 500 ETF Trust (SPY  ) inched 0.3% higher, on track for its sixth straight positive session.

Market pricing of Fed interest rate cuts remain broadly unchanged. Traders assign a 53% chance of no change in interest rates in March, followed by expectations of six consecutive rate cuts by December 2024.