The economy grew by 3.4% in the fourth quarter. The pace of first-quarter growth was slower than what U.S. central bank officials consider a non-inflationary growth rate of 1.8%.

US Economy

US economy maintained growth in the first quarter, albeit at a lower rate. However, persistently high inflation continues, dampening investor expectations for the Federal Reserve to begin cutting interest rates in the coming months.

In the first quarter, the Commerce Department reported a 1.6% seasonally- and inflation-adjusted annual growth rate for gross domestic product (GDP), marking a slowdown from the rapid pace seen last year. The number was lower than the 2.4% forecast by economists polled by the Wall Street Journal.

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Investors focused on inflation data that pointed to higher price pressures across the economy, which led to bond selling and pushed the yield on the 10-year Treasury note above 4.7% for the first time this year. Meanwhile, US stocks fell with the Dow Jones Industrial Average falling more than 600 points in morning trading.

“The report presents a mix of signals,” noted Olu Sonola, head of economic research at Fitch, revealing the complexity of the situation. He raised concerns about the possibility of a resurgence of inflation as well as the ongoing slowdown in growth. This scenario, he suggested, could challenge the feasibility of the Federal Reserve’s interest rate cut expectations in 2024.

Last quarter, the Commerce Department’s Bureau of Economic Analysis reported annual gross domestic product (GDP) growth of 1.6%. Consumer spending has largely fueled this growth. According to economists polled by Reuters, GDP was expected to grow at a rate of 2.4%, with estimates ranging from 1.0% to 3.1%

In the fourth quarter, the economy expanded 3.4%. However, in the following quarter, growth fell below the non-inflation threshold of 1.8%, as assessed by US central bank officials. In terms of inflation, there was a significant increase, particularly as seen in the personal consumption expenditures (PCE) price index excluding food and energy, which increased by 3.7%. This marks a significant increase from the 2.0% pace observed in the previous quarter

The core PCE price index is a key inflation measure monitored by the Federal Reserve to achieve its 2% target. The Fed has kept its policy rate in the 5.25%-5.50% range since July, marking a significant increase from the benchmark overnight interest rate, which has risen 525 basis points since March 2022.

Signs of a recession in the economy are emerging once again. Low-income individuals are saving significantly less than pre-pandemic levels. Mortgage rates recently rose above 7%, leading to a sharp monthly decline in home sales in March, the most significant drop in a year. Additionally, average hourly earnings growth in March marked the slowest annual increase since June 2021.

Us Economy Slow Down

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