U.S. economy grew solidly in 4th quarter

updated 12:40 p.m. ET March 30, 2005

WASHINGTON - The U.S. economy, supported by solid business and consumer spending, grew in the closing three months of 2004 at an annual rate of 3.8 percent. It's expected to perform even better in the opening quarter of this year.

The reading on the gross domestic product, released by the Commerce Department on Wednesday, turned out to be the same as a previous estimate made a month ago.

Before Wednesday's report was issued, some economists were forecasting economic growth for the October-to December quarter of 2004 to be revised slightly higher to a pace of 4 percent. That would have matched the economy's growth rate in the third quarter of last year.

GDP, the broadest gauge of the economy's fitness, measures the value of all goods and services produced within the United States.

For the current January-to March quarter, the U.S. economy is expected to grow at a rate of around 4 percent or slightly faster, according to some analysts' projections. Economic growth probably will slow a bit in the April-to-June period but still be healthy, they said.

Feeling good about the economy's growth but concerned about the prospects of inflation taking off, Federal Reserve policy-makers at their March 22 meeting boosted short-term interest rates for a seventh time since last June, when the Fed's rate-raising campaign began.

Fed policy-makers also sent a strong signal that further rate increases were likely in the months ahead to combat unwanted inflation.

An inflation gauge tied to the GDP report and closely monitored by the Fed showed prices — excluding food and energy — rising at a rate of 1.7 percent in the final quarter of 2004. That was up from a previous estimate for the quarter and marked a big pickup from the 0.9 percent increase registered in the third quarter.

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