Economic growth in the United States has faltered, decreasing to 2.9% in the fourth quarter to cap the year.

The GDP in the United States decreased from the third quarter's 3.2% rate, the Commerce Department said on Thursday as the country is against the ropes when it comes to inflation and rising gas price.

Year on year, economic output grew by 1% in 2022, the Commerce Department added, noting that 2021 saw the output grow by 5.7% and 2019 saw it grow by 2.6%.

Washington attributed some of the slowdown this year to the economy going back to its normal pace after the output surged in light of industry going into full throttle in the wake of the pandemic, stimuli checks, and a weakening pandemic a year earlier.

Moreover, consumer spending increased by 2.1% in the final quarter of 2022, while business investment and government spending contributed to growth.

In light of slowing growth, early on in the third quarter of 2022, a Bloomberg economics model projected that in the next 12 months, a recession in the United States is effectively certain.

Bloomberg economists Anna Wong and Eliza Winger forecasted in their latest recession probability models that there is an increased probability of recession over all timeframes, during which it will hit a downturn reaching 100% in October 2023 compared to 65% within a comparable period during the 12-month estimate.

These projections came just before the midterms in November and shortly after US President Joe Biden announced, while in an ice cream shop, that the US "economy is strong as hell" which placed him in hot waters as his comment comes as the country faces one of the worst economic crises since 2008.

Additionally, the US Treasury said US national outstanding debt exceeded $31 trillion for the first time in its history, at a time when the US is faced with all-time high inflation coupled with high-interest rates, all of which deepen the economic uncertainty problem that the government, businesses, and people are all facing.

Just this last Friday, Treasury Secretary Janet Yellen warned, while Congress has remained undecided on the debt ceiling, that a US default on its debt would set off a worldwide financial crisis.

“If that happened, our borrowing costs would increase and every American would see that their borrowing costs would increase as well,” Yellen told CNN in an interview, referring to a potential debt default.

The fight over the debt ceiling has become an annual tradition in Congress between the ruling party, presently the Democratic Party with Janet Yellen being one of its office bearers, and the opposition, presently the Republicans most prominent among which is McCarthy the speaker of the house.

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The Treasury announced a day earlier that it has taken “extraordinary measures” to avoid a government debt default by temporarily suspending payments not immediately needed by federal retirement, disability, and health benefit funds and channeling the money instead to other urgent services needed to keep the government running until June at least.

It's noteworthy that US inflation surged to a new four-decade high in May, defying hopes that price pressures had peaked and deepening President Joe Biden's political troubles as Americans struggle to meet the cost of essentials like food and gas.

Analysts are projecting that the US Federal Reserve's bids to cool down soaring inflation by further hiking interest rates will lead to broad spending cutbacks and job losses.

The Wall Street Journal, on the other hand, placed the fate of the economy in the hands of the consumers, saying that its trajectory was highly dependent on how they act and what happens to their purchasing power. It said there were signs consumers were beginning to stumble as they reduced spending on home electronics, furniture, and clothing after they had bought these items practically in bulk in the earlier months of the pandemic.

Read next: US set for recession next year, economists predict

The last time that the Fed raised interest rates was in December, which was the seventh time in one year. 

According to the Consumer Price Index (CPI) measurement, inflation increased by 7.7% in a year until October of 2022, rising at its slowest rate in nine months after topping a forty-year high of 9.1% in a year until June of 2022.

The lowered inflation levels came following consecutive rate increases by the Federal Reserve last year, raising the rate by 4.25% between March and December of last year.

In case the inflation has actually peaked, economists expect the Fed to raise rates by only 0.25% during the coming FOMC meeting in February, unlike previous hikes of 0.75% decided between June and November of 2022. 

Initially, the Federal Reserve hoped that it could cool down inflation by slowing economic growth than bringing in an all-out contraction. However, the broader toll from a hike in interest rates could potentially take months to materialize, but in the meantime, the housing sector is suffering as mortgage rates increase after residential investment declined in 2022 and home sales declined 18% year on year.

Meanwhile, final sales to private domestic consumers, an index of consumer and business spending gauging demand, cooled in the second and third quarters of 2022 from previous quarters, according to the Commerce Department.

Last year, purchasing power from paychecks declined for middle-income families while increasing for lower-income and higher-income households. Wage gains and epidemic savings benefitted many lower-income households, but higher-income households had a big enough savings cushion to spend aggressively.

There are signs that Americans are now depleting their savings. Households saved 2.4% of their disposable income in November, down from 33.8% in April 2020, as a result of government stimulus, which left many consumers flush with cash but with few alternatives to spend during lockdowns.