The latest GDP statistics show that the economy remains strong, but growth is slowing. (iStock)
US gross domestic product (GDP) fell faster than expected first quarterBut a key measure used by the Federal Reserve to measure inflation continued to rise, according to the Bureau of Economic Analysis (BEA).
Real GDP grew at an annualized rate of 1.6% in the January-March period, after growing 3.4% in the fourth quarter of 2023, according to preliminary estimates released Thursday by the U.S. Bureau of Economic Analysis (BEA). According to Reuters, economic forecasts had predicted that growth would slow month-on-month to 2.4%. report.
Compared to the fourth quarter, the slowdown in real GDP in the first quarter primarily reflected slowdowns in consumer spending, exports, state and local government spending, and weaker federal spending. This slowdown was partially offset by an acceleration in housing investment.
“We knew the economy was moving away from government support, but we didn’t expect it to cause GDP to decline so quickly,” said Robert Frick, business economist at Navy Federal Credit Union. . “GDP fell short of all expectations as coronavirus-era support evaporates, government spending falls and consumer spending is subdued.
“However, consumers continue to spend healthily, as evidenced by their heavy spending, especially on imported goods, which pushed down the top line of GDP,” Fick continued. “As you can see from last year’s GDP, GDP in the first quarter is often revised significantly, so overall, this should not be seen as a fundamental downturn in the economy. do not have.”
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The Fed is in no hurry to cut interest rates
Core inflation continues to rise, so the economic slowdown is unlikely to accelerate the rate cut schedule.
The personal consumption expenditures (PCE) price index, which excludes food and energy prices, a key indicator the Federal Reserve tracks to measure inflation, rose 3.7% after rising as high as 2% in the fourth quarter. .
“Inflation will likely return to a downward trend and slowly approach the Fed’s 2% target,” said Thelma Hepp, chief economist at CoreLogic. “However, the Fed is unlikely to lower interest rates until it has more confidence in the downward direction of inflation, and as a result, overall investment in the housing sector will remain low.”
The central bank has kept its policy interest rate unchanged at 5.25% to 5.5% since July. Federal Reserve Chairman Jerome Powell said after the March meeting that while cutting rates this year was still on the table, the central bank had revised its forecast for only three rate cuts this year. Chairman Powell said the Fed remains committed to lowering inflation to its 2% target rate, noting that cutting rates too soon risks a rebound in inflation, and cutting rates too long risks economic growth. I warned you it would happen.
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Americans are less worried about inflation and recession risks
Rising interest rates and borrowing costs are holding back consumer spending on big-ticket items like homes and cars. But Americans have generally gotten used to higher prices and feel better able to manage their finances, according to a recent Santander report. investigation.
Additionally, many Americans are beginning to accept a high interest rate environment as the new normal, and fears of a recession have taken a backseat. The number of respondents who expected a recession in the next 12 months fell from 69% to 60%.
However, consumers are being forced to make significant budget cuts to survive in a high-cost environment, with the survey finding that 67% of respondents have cut back on important purchases such as vacations, cars, and home improvements. I answered.
Tim Weness, CEO of Santander, said: “Middle-income households have had to weather rising prices due to inflation, but consumers are taking positive steps to manage and adjust their household finances. It’s reassuring to see that.”
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