Fed should like moderate Q4 GDP growth

The U.S. economy grew at an annual rate of 2.5% in Q4, the U.S. Commerce Department announced Thursday, slightly above the 2.2% consensus estimate.

The stat represents the U.S. government's final revision for Q4 GDP. The government's initial estimates had projected 3.5% growth for the last quarter of 2006. Hence, the 2.5% stat represents a substantial under-performance by the world's largest economy.

Slowing corporate earnings growth and business investment, combined with initial signs of a pull-back in consumer spending, and sub-prime loan defaults have economists concerned that the U.S. economy may slow too much in the first half of 2007 -- perhaps flirting with a recession. In 2006, the U.S. Federal Reserve increased short-term interest rates to slow the U.S. economy and take pressure off commodity prices, which had helped feed inflation.

Fly Analysis: The Q4 stat provides further evidence that the U.S. Federal Reserve has slowed the U.S. economy, as intended. The 2.5% stat represent moderate, sustainable growth -- one that in and of itself should not accelerate pressure on prices. It's an acceptable growth rate for the Fed -- not too fast and not too slow -- and one that further supports the Fed's neutral short-term interest rate policy stance to date in 2007. Along with upcoming inflation data, the Fed will now await further statistics for Q1 to determine if the economy is continuing to slow, of in growth has started to re-accelerate -- factors that will help determine monetary policy as 2007 progresses.