The US economy expanded at a slower pace than anticipated in the first quarter, according to the Bureau of Economic Analysis's advance estimate of gross domestic product (GDP). The data revealed that the economy grew at an annualized rate of 1.6%, below economists' expectations of 2.5%.
Q1 GDP Data Highlights:
US economy grows at 1.6% annualized pace, below economists' estimates.
Consumer spending slows to 2.5% increase.
Inflation remains elevated, with the core PCE index rising by 3.7%.
Stock futures decline, bond yields rise following GDP release.
Federal Reserve Chair emphasizes need for continued restrictive policy amid inflation concerns.
This growth rate represents a deceleration from the previous quarter, where GDP was revised upwards to 3.4%. The softer-than-expected growth suggests that the Federal Reserve's series of interest rate hikes may be exerting pressure on both consumers and economic activity.
Consumer spending, a key driver of economic growth, slowed to a 2.5% increase compared to the prior quarter's 3.3%. This decline, coupled with reductions in business inventories and government spending, contributed to the overall slowdown in GDP growth.
The disappointing economic performance comes amidst a backdrop of elevated inflation. The core Personal Consumption Expenditures index, which excludes volatile food and energy prices, rose by 3.7% in the first quarter, surpassing estimates and indicating persistent price pressures.
Following the release of the GDP data, stock futures declined while bond yields rose, reflecting investor concerns about the economic outlook. The 10-Year Treasury yield reached above 4.7% for the first time since early November 2023.
Federal Reserve Chair Jerome Powell emphasized the need to allow current restrictive monetary policy to continue, citing progress in addressing inflation. However, the combination of sluggish economic growth and high inflation poses challenges for policymakers as they navigate monetary policy decisions.
In summary, the weaker-than-expected GDP growth in the first quarter underscores the impact of the Federal Reserve's interest rate hikes on economic activity. With inflation remaining elevated and growth slowing, the path forward for the US economy remains uncertain.
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