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United States economic outlook: first half of 2023

6 October 2023|Briefing note

The United States economy, supported by retreating inflation and a strong job market, showed resilience in the first half of 2023.

1. The United States economic expansion in the first half of the year was driven mainly by consumer spending, which accounted for the largest contribution to growth in the first and second quarters. The second quarter of 2023 marked the fourth consecutive quarter of growth near or above the economy’s potential, estimated at 2% (figure 1).

2. The labor market has continued to show strength. An average of 236,000 new jobs were created per month and 1.9 million new jobs were added from January to August 2023, while the unemployment rate was at 3.8% at the end of August (figure 2).

3. Inflation has continued to moderate in the first half of 2023, slowing to a low of 3% in June 2023 from 6.5% in December 2022. However, headline inflation increased to 3.2% and 3.7% in July and August respectively, as oil prices increased. Core inflation, which excludes volatile energy and food categories, declined to 4.3% in August, the lowest level in two years, from 5.7% in December 2022 (figure 3).

4. The Federal Reserve raised interest rates four times this year. There were quarter-point interest rate increases in January, March, May and July 2023. In September, the policy rate was left unchanged at 5.25% to 5.50%, while the median forecast still shows one more quarter-point hike this year. This was the Fed’s second pause this year, the first pause taking place at the June meeting (figure 4).

5. The Fed’s first pause in June may have contributed to a flurry of new Latin American and Caribbean (LAC) bond issuances in the last two weeks of the month, when 79% of all June issuances took place. Overall, LAC bond issuers placed US$ 49.5 billion in international bond markets in the first half of 2023, a total that was 9% higher than in the first half of 2022 and 158% higher than in the second (figure 5). However, with the September projections released by the Fed showing 12 of its 19 officials supporting another rate rise this year and fewer cuts in 2024, financing costs for LAC issuers are likely to remain high.



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