Why has growth remained strong in the United States despite restrictive monetary policy?

In 2023, US gross domestic product grew by an annual average of 2.5%, and by 3.1% if the four quarters of the year are added together. This growth performance may come as a surprise at a time when monetary policy is restrictive (the short-term interest rate is higher than the inflation rate), and the Federal Reserve is postponing the date of the first rate cut. In fact, the economic situation and monetary policy in the United States can be explained by the inclusion of rents imputed to homeowners in the calculation of inflation (or core inflation). Accordingly, the inflation rate taken into account by the Federal Reserve is still well above 2%, which is why it maintains a restrictive monetary policy. But the inflation that should be used to calculate the increase in wage earners’ purchasing power (headline inflation excluding rents imputed to homeowners) is much lower (1.9% in January 2024 instead of 3.1% for headline inflation), enabling household consumption to grow rapidly. The inclusion of rents imputed to homeowners in the price index and in the inflation to which the Federal Reserve reacts therefore explains why US growth in 2023 was higher than potential growth even though monetary policy remained restrictive.