The U.S. economy expanded at a 2.7% annual rate from October through December, a solid showing despite rising interest rates and elevated inflation, the government said Thursday in a downgrade from its initial estimate.

The government had previously estimated that the economy grew at a 2.9% annual rate last quarter.

The Commerce Department’s revised estimate of last quarter’s gross domestic product — the economy’s total output of goods and services — marked a deceleration from the 3.2% growth rate from July through September. While overall growth was solid in the fourth quarter, business spending barely rose, and consumers spent cautiously, suggesting that the economy lost momentum at the end of 2022.

More recent data issued this month, though, shows that the economy has since rebounded. Consumers boosted retail sales in January by the most in nearly two years, and employers added a surprisingly outsize number of jobs. The unemployment rate reached 3.4%, the lowest level since 1969.

Some of the surprisingly strong economic gains in January likely reflected much warmer-than-usual weather. Few economists expect similar outsize gains in hiring or spending in the coming months. Most analysts think growth is slowing to a roughly 2% annual rate in the current January-March quarter.

And the Federal Reserve is expected to keep raising its benchmark interest rate over the next few months and to keep it at a peak through year’s end to try to defeat still-high inflation.

Higher borrowing costs make mortgages, auto loans and credit card borrowing more expensive. Those higher rates could discourage consumers and businesses from spending, hiring and investing and could eventually push the economy into a recession.

Inflation, measured year over year, has cooled since it reached 9.1% in June, having slowed to 6.4% in January. Yet on a monthly basis, price gains accelerated from December to January, raising the prospect that the Fed will raise its benchmark rate higher than it has previously signaled.