of 3 percent would be needed over a sustained period to significantly lower high unemployment. For the whole of 2012, the economy grew just 2.2 percent, and a report on Friday is expected to show the jobless rate held at 7.8 percent for a third straight month in January.
The Fed's commitment to loose monetary policy pushed the dollar to a 14-month low against the euro. Prices for U.S. Treasury debt rose marginally, while stocks on Wall Street fell.
In the fourth quarter, the recovery had to deal with uncertainty over the so-called fiscal cliff of scheduled tax hikes and budget cuts, which hurt confidence even though households and businesses seemed to shrug off the worries.
Businesses, caught with too much inventory on their hands in the third quarter, slowed their stock building in the final three months of the year. That slowdown reduced GDP growth by 1.27 percentage points, the most in two years.
But with the pick-up in consumer spending in the fourth quarter, businesses now will need to replenish stocks, which should help lift growth early this year.
"Today's number actually leaves the economy relatively well-positioned heading into the first quarter," said Michael Feroli, an economist at JPMorgan in New York.
The GDP report showed government spending tumbled at a 6.6 percent rate, with defense outlays plunging at a 22.2 percent pace, the largest drop since the third quarter of 1972.
Defense spending is on a downward trajectory as the government winds down two wars, but it had jumped in the third quarter, setting up for a larger-than-normal decline in the final three months of the year.
Trade also cut into the economy, slicing a quarter of a percentage point off the change in GDP. Exports, which have been hampered by a recession in Europe, a cooling Chinese economy and storm and strike-related port disruptions, fell for the first time since the first quarter of 2009.