U.S. economic growth slowed more than expected in the first quarter, but the quarterly Personal Consumption Expenditure inflation component was surprisingly high, suggesting the Fed will not cut interest rates before September.
US Q1 GDP Shows Surprising Slowdown and Disturbing Inflation
Gross domestic product rose at an annual rate of 1.6% last quarter, the Commerce Department said in its preliminary estimate today.
Economists surveyed by Reuters had predicted that GDP, which grew by 3.4% in the fourth quarter, would increase by 2.4%.
The economy has defied doomsday scenarios since late 2022 following the Fed's aggressive interest rate hike campaign to suppress inflation.
Expert Opinions
Olu Sonola, Head of US Economic Research at Fitch, stated that the report brings mixed messages. “This confirms a downshift in economic growth and the trend of accelerating inflation,” Sonola said. He also noted that hot inflation pressure is the real story in this report.
Peter Cardillo, Chief Market Economist at Spartan Capital Securities in New York, noted that the economy continues to grow, albeit at a slower pace, and inflation remains sticky.
He suggested that the FED is unlikely to cut interest rates in June, leaving a big question mark for the rest of the year.
Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in NC, described the report as the worst of both worlds, with economic growth slowing and inflationary pressures continuing.
Brian Jacobsen, Chief Economist at Annex Wealth Management in Wisconsin, said GDP growth was a miss, but when it comes to consumer spending, the details are déjà vu again.
He expressed his concerns, stating that the re-acceleration of service prices to 5.4% on an annual basis puts the FED in a bit of a difficult situation.
As the US economy continues to struggle with slowing growth and rising inflation, all eyes are on the upcoming PCE figures.
Discussions about a possible interest rate cut or even an interest rate increase are injecting great uncertainty into bond and stock markets.
*This is not investment advice.