Markets plunged Thursday as U.S. economic growth slowed to its slowest pace in two years in the first quarter, while inflation accelerated further, as President Joe Biden faces a brighter outlook for U.S. households heading into his re-election campaign. was cloudy.
According to data released by the Department of Commerce, gross domestic product (GDP) grew at an annual rate of 1.6%. For the three months ending in March, it was below the 2.4% estimate of economists polled by the Wall Street Journal.
The growth rate was the slowest since 2022, well below fourth-quarter GDP, which was revised upward to 3.4%, and down from 4.9% in the previous quarter.
A further problem is that prices remain high.
Thursday’s data also showed that the personal consumption expenditures (PCE) price index, which excludes food and energy, a key measure the Federal Reserve looks at when considering whether to cut interest rates, was lower than the central bank’s price index in the first quarter. It also showed an increase of 3.7%. The goal is 2%.
Investors and analysts are weighing higher inflation numbers over signs that the economy is finally cooling, which would generally prompt the Fed to cut interest rates.
The Dow Jones Industrial Average fell nearly 500 points as investors largely gave up hope that the Federal Reserve would lower interest rates at 23-year highs multiple times this year. It probably won’t be lowered until fall. The S&P 500 fell by 34 points, while the tech-heavy Nasdaq fell by 134 points.
According to data from CME Group’s FedWatch tool, odds are 10% that the Fed will cut rates in June, bets on a September rate cut are below 58%, and bets on a second rate cut in December are even odds. It was shown to be less than the odds.
“This report sends mixed messages,” said Olu Sonora, head of economic research at Fitch. “Even if growth continues to moderately slow, if inflation accelerates strongly in the wrong direction again, expectations for the Fed to cut rates in 2024 start to look increasingly out of reach.”
Reports on GDP, which represents the value of all goods and services produced in a given period of time, show that U.S. consumers continue to do well despite years of rising employment and wages. Ta. Health care, financial services and insurance led spending, offsetting declines in goods such as cars and gasoline.
Mr. Biden tried to spin the GDP data in his favor, touting that “the economy has grown more since I took office than at this point in any presidential term in the last 25 years.”
Gregory Daco, chief economist at tax and consulting firm EY, said the underlying economy looks solid, although it is slowing from last year’s unexpectedly fast pace.
He said the increase in imports, which accounted for much of the decline in growth in the first quarter, was “an indication of robust demand” for foreign goods by U.S. consumers.
Still, Darko said the economy’s “momentum is slowing.”
“While the cuts are unlikely to be significant, economic momentum is likely to slow as consumers become more selective about their spending,” he said.
US debt has soared to an all-time high of $33 trillion, with the debt-to-GDP ratio exceeding 100%, at 123% according to the International Monetary Fund, and this ratio is projected to reach 130% by 2035. .
The Fed has warned that stubbornly high inflation is likely to continue, especially given the resilience of the labor market, which added 303,000 jobs in March.
Although much of the job growth was reportedly taken by immigrants, immigrants make up an increasingly large portion of the U.S. workforce, and historically strong labor markets have led to higher wages and levels of consumer spending. , which fuels inflation and interest rates.
As a result, Wall Street now widely expects Fed officials to cut rates twice by the end of the year, a downward revision from the previous forecast of three cuts totaling 0.75 percentage points. There is.
Federal Reserve Chairman Jerome Powell said on April 16, “Given the strength of the labor market and the trajectory of inflation to date, we will continue to allow more time for restrictive policy to take effect, and we will continue to provide guidance based on data and the evolving outlook.” It is appropriate to entrust this to the public.”
